{"id":27195,"date":"2023-06-25T05:34:43","date_gmt":"2023-06-25T09:34:43","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/the-stock-markets-rally-has-made-it-expensive-these-stocks-are-still-cheap\/"},"modified":"2023-06-25T05:34:45","modified_gmt":"2023-06-25T09:34:45","slug":"the-stock-markets-rally-has-made-it-expensive-these-stocks-are-still-cheap","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=27195","title":{"rendered":"The Stock Market\u2019s Rally Has Made it Expensive. These Stocks Are Still Cheap."},"content":{"rendered":"
\n
<\/p>\n
<\/p>\n<\/figure><\/div>\n

The
\n S&P 500
\n has rallied a bit more than 20% from its low in early October, and with the market at such an expensive level it is difficult to find promising stocks. The good news is that a few sectors still look cheap.\u00a0<\/p>\n

The rally has been fueled by the view that economic and corporate earnings growth will stabilize by some point later this year or next year. The Federal Reserve is at\u2014or near\u2014the end of its interest rate hikes, which have already dragged the rate of inflation lower. <\/p>\n

\n

Now the S&P 500\u2019s forward price\/earnings multiple has landed at almost 19 times, up from just below 16 times at the start of the rally. This is especially high, considering the now-appealing 5% yields on some government debt. <\/p>\n

And it isn\u2019t just the Big Tech group\u2014which are up double digits, with some seeing near twofold increases\u2014that is expensive. The median stock on the S&P 500, which accounts for the large market values of the higher-multiple Big Tech group, is still about 17 times. That is above the 20-year average for the median multiple of about 16 times, according to Credit Suisse.\u00a0<\/p>\n

Fortunately, several sectors are trading at discounts to the index. They still might have a little downside, but their prices are at least accounting for a considerable amount of risk\u2014and the upside seems plentiful. The areas that look especially cheap are regional banking, materials, and pharmaceuticals.\u00a0<\/p>\n

Start with regional banks. The
\n SPDR S&P Regional Banking ETF
\n (ticker: KRE), which includes holdings such as
\n M&T Bank
\n (
\n MTB
\n ) and
\n Truist Financial
\n (TFC), is down about 38% from its highest point this year, just weeks before the Silicon Valley Bank collapse. Regional banks took a hit when depositors pulled money out of accounts\u00a0in search of higher-yielding money-market funds, pressuring banks\u2019 ability to lend and generate earnings\u2014and putting significant strain on their balance sheets.\u00a0<\/p>\n

Now, the ETF trades at just over eight times earnings, more than 10 points below the S&P 500\u2019s multiple. Historically, the fund trades at a P\/E that is only about three points below the index. Shares of banks that haven\u2019t seen depositor runs could quite simply catch a bid soon, while the entire group could also recover if upcoming earnings reports show a stabilization of deposits, a brightening outlook for loan demand, and improving consumer and business credit.\u00a0<\/p>\n

Some materials stocks are pretty cheap, too. The entire group is cheaper relative to the S&P 500 than it has been historically, but some of the cheapest names are more than seven multiple points below the broader index, versus about in-line historically. Those are the materials names outside of metals and chemicals.<\/p>\n

\n International Paper
\n (IP), $10.7 billion by market value and maker of industrial packaging, printing paper, and other products, trades at just over 12 times earnings.
\n WestRock
\n (WRK), the $7 billion fiber-based paper maker, trades at 11 times earnings. If the market grows more confident in consumer demand across the board, it will grow more confident in these companies\u2019 earnings\u2014and send their stocks higher.\u00a0<\/p>\n

And then there is pharma. The group trades at a multiple about five points lower than the market, versus one point lower historically. Drugmaker
\n Bristol Myers Squibb
\n (BMY) trades at about eight times earnings. A patent expiration on its myeloma treatment, Revlimid, is pressuring market share for the drug, so as the company moves closer to getting brand new drugs to market, the stock could pick up some steam.\u00a0<\/p>\n

In a market without many bargains, these stocks might be the closest things to steals.\u00a0<\/p>\n

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The S&P 500 has rallied a bit more than 20% from its low in early October, and with the market at such an expensive level it is difficult to find promising stocks. The good news is that a few sectors still look cheap.\u00a0 The rally has been fueled by the view that economic and corporate […]<\/p>\n","protected":false},"author":1,"featured_media":27196,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-27195","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nThe Stock Market\u2019s Rally Has Made it Expensive. 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