With U.S. shares up more than 80% from their March 2009 lows, bargains are growing scarce. Below, however, are three companies selling for two-thirds off, so to speak: Each at some point during the past five years sported a price-to-earnings ratio that was more than thrice what it is today.Shrinking P/E ratios aren't unusual. When growth investors sell, the saying goes, they sell to value investors. Young companies often fetch high P/Es because of their growth potential, while mature companies can make up for chronically low P/Es with dividends and predictable performance.
That latter type of stock might be a better fit for today's economy. Increased stock-market volatility has reminded investors that price momentum can be fleeting and that a stream of stable dividends is a fine thing to have during a downturn. Also, corporations have been unusually profitable of late. After-tax corporate earnings are 5.7% of gross domestic income. The average since 1929 is 5.0%. Such things have a way of reverting to historic averages. If profits dip, companies with high share prices relative to their earnings might have more to lose than companies with lower price-to-earnings ratios like the ones below. (more)
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