The price-to-earnings ratio for the S&P 500 has dropped to 13.6 from 14.3 at the end of 2007, as concerns mount about whether companies can meet profit expectations in the face of a likely recession. Nevertheless, many stocks still trade at a discount to the 500's multiple.
That could present an opportunity for investors. With that in mind, we set about building this week's screen. The first step: Identify the companies in our STARS universe—the companies we maintain analytical coverage on—with a p-e lower than the S&P 500's average of 13.6.
That took care of the valuation part.
Next, we wanted to identify issues that had solid potential for capital appreciation. So we sifted for those companies that carried S&P's highest investment ranking of 5 STARS (strong buy). Stocks with that designation are expected by S&P equity analysts to outperform the S&P 500-stock index by a wide margin on a total return basis over the next 12 months, with the shares rising in price on an absolute basis.
Nine stocks made the cut, with retail and energy names heavily represented:
|Abercrombie & Fitch||ANF|
|American Eagle Outfitters||AEO|