It is a big mistake to look simply at a stock's trading price to determine whether or not it is an attractive value. Some low-priced stocks are indeed good values, while others remain overbought and should be avoided.
How can you tell the difference between a good value and a stock to avoid? One way is by looking at where the stock is trading in relation to the company's earnings, and as importantly where it is trading in relation to what analysts expect the company to earn moving forward.
A general rule of thumb is that stocks are reasonably priced when they trade at around 15 to 20 times past earnings. Any stock in that range is worth a closer look. If you find stocks in this range that are expected to grow earnings moving forward and have low forward P/E's you can assume that the stock has significant value and is worth consideration.
Here are five stocks trading under $20 that are not only inexpensive, but also offer a ton of value.
Western Union (WU)
Money transfer agent Western Union (WU) is currently trading at $19.29 which is just 10.3 times past earnings and 9.6 times forward earnings. Earnings growth is expected to be modest at just 2.7% per annum over the next five years, but with such a low valuation that company does not have to show a lot of earnings growth to keep momentum under the stock. After hitting a 52-week low in December, WU has made a strong recovery, and is currently testing resistance at $19.50. If the stock is able to break through resistance, the next level of resistance is at $20.50. Western Union will report its next set of quarterly numbers on May 9 with the consensus calling for earnings of $0.42 share, down from $0.45 during the same period last year. Analysts have a $19.72 average price target on the stock.
The AES Corporation (AES)
The AES Corporation (AES) is a power utility company. AES currently trades at $18.88. The stock is trading at 10 times past earnings and 12.5 times future earnings. The valuation is low because the company has struggled to grow profits in recent years, with earnings up just 0.6% per annum the last five years. However, looking ahead analysts see improvements and forecast profits to rise at an average annual rate of 7.6% over the next five years. AES will report its next set of quarterly numbers on May 7, with the consensus calling for earnings of $0.63 per share. During the same period last year the company earned $0.28 per share. Last quarter the company posted a positive earnings surprise which drove shares to a new 52-week high. Analysts have a $16.30 average price target on the stock.
Commercial Metals Company (CMC)
Commercial Metals Company (CMC) has shown modest earnings growth of just 5.7% annual growth over the last five years. Because of the low growth, the stock has a low valuation and is currently trading at just 16 times earnings and 7.4 times future earnings. While growth has been slow in the past, analysts see this changing, and forecast profits will rise by 27% during the current year and at an annual rate of 27% over the next five years. The company last reported earnings at the end of March, posting better than expected earnings while revenues fell slightly short of the consensus. Wall Street has focused on the earnings beat and pushed the stock higher over the last few weeks. Analysts have a $20.79 average price target on the stock.
Kimco Realty (KIM)
Real Estate Investment Trust Kimco Realty (KIM) is trading just pennies below its 52-week high at $18.38. KIM trades at just 18 times earnings, which are expected to rise 4.6% per annum over the next five years. Kimco is a retail REIT, and the strong overall economy and low unemployment have led to strong consumer confidence and a bullish environment in retail. Kimco will report its next set of quarterly numbers on May 2 with the consensus calling for earnings of $0.36 per share, down a penny from the same period last year. Analysts have an average price target of $17.58 on the stock.