These large cap stocks are insanely cheap

 

While no one ever wants to see the market sell off, the bright side of the recent pullback in the market is that a lot of high-quality stocks are trading at a nice discount to where they were trading just a few weeks ago.

The market’s bull run pushed the overall market to new record high and a lot of stocks saw their valuation rise too high. We now have the opportunity to buy into some of these stocks at a great price.

There are many ways to judge a stocks fair value. We chose to look at a stock’s price to earnings ratios. Not only do we want to see a stock trading with a low P/E ratio, but we also need to see the underlying company growing earnings in recent years with the expectation of additional earnings growth in the future.

In order for a stock to maintain its current valuation while earnings rise the stock has to also rise in value. This is why we can view the recent market selloff as a positive and use it to find some great large cap stocks that we believe are trading insanely cheap versus their true fair value.

If you are looking for buying opportunities from the recent sell off, consider these five stocks that look much more attractive now than they did before the market turned south.

Target

Mega retailer Target (TGT) has done a good job in recent years growing its e-commerce business and improving its in-store customer experience. The changes have been working, and earnings have been on the rise. Profits are up 13.3% per annum over the last five years, and analysts forecast annual earnings growth of 8% over the next five years. TGT hit an all-time high in September, but shares have pulled back with the overall market in October. The stock currently trades with a trailing P/E of 14.3 and a forward P/E of 14.5. Sentiment is very bullish on the stock, and shares should resume their upward trend as the overall market regains strength. TGT reports earnings November 20 and is trading at $81.77 with an average price target of $90.47.

Chart courtesy of stockcharts.com

Allstate

Insurance provider Allstate Corp. (ALL) has sold off with the overall market in October, and the stock currently trades with a trailing P/E of 10 and forward P/E of 10.5. Earnings are expected to rise 42% during the current year and looking ahead analysts see profits rising by 14% per annum over the next five years. Allstate will next report earnings October 31, with the consensus calling for $2.04, up from $1.60 during the same period last year. Rising interest rates are a positive for the insurance sector as insurance providers are able to generate higher interest income on premiums they invest in fixed-income assets before they are needed to pay out client claims. Analysts are bullish on the stock with an average price target of $107.22 versus its current trading price of $95.77.

Chart courtesy of stockcharts.com

Dollar General

A strong economy with low unemployment has boosted consumer confidence, but not all retailers are thriving in the current economic landscape. Discount retailers have shown strength, and Dollar General (DG) has enjoyed strong earnings growth in recent years. The company has grown earnings by 12% per annum over the last five years, and earnings are expected to rise an additional 15% annually over the next five years. The stock experienced some initial selling pressure with the market sell off, but traders quickly came back in and pushed the stock higher. While the stock has not sold off with the overall market, DG still looks undervalued with a forward P/E of 16. DG reports earnings November 29. The stock is trading at $108.55 with an average price target of $115.27.

Chart courtesy of stockcharts.com

Discover Financial Services

Credit card company Discover Financial Services (DFS) was in a strong upward trend before falling in sympathy to the overall market in recent weeks, and the stock looks very attractive with a forward P/E of just 8.4 at the current price. Earnings are rising, with analysts expecting full year earnings growth of 32% during the current year and analysts expect additional earnings growth of 17% per annum over the next five years. With a forward P/E of 8, and earnings expected to rise 17% annually for the next five years, DFS looks insanely cheap at the current price. The stock trades at $72.99 with an average price target of $86.64. Discover reports earnings October 25 with the consensus calling for $2.05, up from $1.59 during the same period last year.

Chart courtesy of stockcharts.com

AutoZone

Auto parts retailer AutoZone (AZO) has fallen over 8% the last two weeks as the broader market has pulled back. The company most recently reported earnings mid-September with earnings rising 21% year over year and results topping estimates on both the top and bottom line. The recent drop in the stock creates a good buying opportunity for investors that missed out on the stock’s post-earnings gains. With the recent selling, AZO currently has a trailing P/E of 14.9 and a forward P/E of 11.9. Earnings are expected to rise 14.3% this year, and by an average annual rate of 10.9% over the next five years. The stock currently trades at $729.30 with an average price target of $815.45.

Chart courtesy of stockcharts.com

Symbols: ALL AZO DFS DG TGT
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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