Two of the most important things in investing are value and income. Whether your investment strategy centers are value hunting or around building income, you can never go wrong by trying to find stocks that provide both.
Value is tough to calculate, but the best metric to use is a stock’s P/E ratio. The lower a stock trades in relation to earnings the cheaper it is. Most traders accept that stocks are reasonably priced when they trade with P/E’s between 15 and 20. Value hunters realize that just because a stock has a P/E below 15 it is not necessarily a good value, but if you can find stocks trading at this level that are expected to grow earnings moving forward you are moving in the right direction.
Likewise, dividend hunters appreciate stocks with yields greater than 2 percent. We are currently seeing interest rates rising, but they remain very low on a historic basis, and stocks that yield over 2 percent are still considered high-yielding and offer better income than traditional fixed-income assets.
I like both approaches, which is why I love stocks that have low P/E ratios and high yields. Here are five that offer just that in today’s market.
Off-priced retailer Kohl’s (KSS) looks like an attractive dividend buy at this time. The stock is yielding a hefty 3.7% and shares are trading at just 11 times earnings. Kohl’s has struggled with earnings growth in recent years, with profits rising just 2% per annum over the last five years, but analysts see that metric picking up moving forward. Looking ahead analysts expect Kohl’s to show average annual earnings growth of 10.7% for the next five years. The stock took a big hit when the overall market corrected at the end of 2018, and while the stock has stabilized it has yet to stage a meaningful recovery from its recent losses. The company will report its next set of quarterly numbers March 5, and that report will determine whether or not we see a rally in the stock. Given the low valuation the downside should be somewhat limited barring a huge earnings miss, with the stock possessing a lot of upside in the event of a strong report. KSS is trading at $66.31 with an average price target of $75.85.
J. M. Smucker Company (SJM)
J. M. Smucker (SJM) currently offers a 3.3% dividend yield with the stock trading at less than nine times earnings. SJM showed weakness during the second half of 2018, but the stock appears to have hit a bottom and is ready to move higher. The company will report its next set of quarterly numbers February 26, and that report will determine whether or not we see shares stage a rally to erase some of the recent losses. With the low valuation there is a good chance for a big rally as long as the company is able to post results in-line with the consensus, which calls for earnings of $2.03 per share. The company has missed its estimates the last three quarters, which has pulled the stock lower. Given the current valuation, the downside is likely limited to the 52-week low of $91.32 set in December. SJM currently trades at $103.68 and analysts have an average price target of $109.22 on the stock.
Celanese Corp. (CE)
Celanese (CE) manufactures specialty chemicals. The stock has a 2.2% divided yield, and shares are currently trading at just 11.2 times earnings. Earnings are expected to be down 4% for the current year but looking ahead analysts expect profits to rise at an annual rate of 11% over the next five years. CE has trended steadily higher after hitting a 52-week low in December, and the stock is up 21% from its recent low. The company reported weaker than expected numbers at the end of January, but the market overlooked the shortfall and shares are now higher than they were ahead of the quarterly report. The low valuation coupled with the strong earnings growth forecast should help CE maintain its current momentum. CE is trading at $100.65 with an average price target of $114.47.
Comerica (CMA) is a regional U.S. bank. The stock currently has a yield of 3.1% and is trading at 12 times earnings. CMA has made a strong comeback from a December selloff that has seen the stock appreciate 36% from its 52-week low set in December. Even with the strong recovery shares remain attractively priced, and the company reported strong quarterly results in January and will not report again until April 16. The bank has shown impressive growth in recent years with profits up 22% per annum over the last five years and analysts expect profits to continue to rise at an average annual rate of 19.8% over the next five years. The strong growth forecast and low valuation makes the high yielding stock very attractive. CMA is currently trading at $87.08 and analysts have an average price target of $91.50 on the stock.
Best Buy (BBY)
Electronics retailer Best Buy (BBY) has done a great job reinventing itself in recent years, and its turnaround program has yielded earnings growth of 23% per annum over the last five years. Looking ahead analysts expect more of the same with profits expected to rise at an annual rate of 16.3% over the next five years. The strong growth forecast makes the stock very attractive as it currently trades at just 15 times earnings and 11 times forward earnings. In addition to its attractive valuation the stock is currently yielding 3%. Best Buy has yet to report its quarterly numbers this earnings season and will report its Q4 numbers February 27. The stock sold off in December but has rallied 26% from its December low. Best Buy has topped estimates on the top and bottom line each of the last three quarters and if it can extend that streak with its Q4 report the stock should easily build on its recent gains. BBY is currently $60.38 trading at and analysts have an average price target of $71.57 on the stock.