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By Matt Doiron

Wall Street earnings expectations aren't always very reliable, but looking at the forward P/E multiple is a good way to see how a company's current stock price compares to what its future earnings might be. By looking for stocks trading at a low forward P/E, investors can find stocks that the market is less bullish on than the sell-side consensus. Of course, there are two possible explanations for this low multiple: The market can be wrong, in which case the stock is underpriced and the low earnings multiple serves as a buy signal, or the analysts can be overly optimistic on the stock.

One way to try to weed out stocks that Wall Street analysts may be giving too much credit- and therefore increase the chances that a given stock is undervalued- is to consider how the company performed against earnings expectations last quarter. One earnings beat is only one data point, but it provides at least some suggestion that coverage groups aren't persistently optimistic about the stock. Using Fidelity's market data, here are seven U.S. stocks which are in the bottom 20% of the market in terms of positive earnings surprises over the last 90 days and forward P/E multiples, and have market caps of at least $2 billion:

Company

Positive Earnings Surprise (90 days)

Forward P/E

First Solar (NASDAQ:FSLR)

+84%

5.8

Tenet Healthcare (NYSE:THC)

+122%

7.8

JPMorgan Chase (NYSE:JPM)

+71%

7.2

Allstate (NYSE:ALL)

+72%

8.8

Goldman Sachs (NYSE:GS)

+53%

8.4

Terex (NYSE:TEX)

+54%

8.3

United States Steel (NYSE:X)

+47%

8.3

Long-term First Solar investors are likely wondering if the worst is over. The stock is still down 74% from a year ago as prices in the solar industry have plummeted. But at least the company is still in business, which is more than can be said for certain other high-profile solar companies. Its strong earnings report has helped fuel a 69% increase in share price in the last three months, yet the sell-side is urging investors on. They expect that even with a decline in earnings per share next year, First Solar's thin-film semiconductor solar modules will lead the company to $4.10 per share in net income.

We have written that JPMorgan Chase and Citigroup are better bets than Wells Fargo, and here we see JPMorgan popping up again. It wouldn't be surprising to us if bad publicity from the London Whale losses, as well as poor consumer sentiment towards big banks in general have pulled down the stock price. On a forward basis, and at a P/B of 0.8, we still think it is a buy. Pure-play investment bank Goldman Sachs doesn't have JPMorgan's losses to deal with, but paradoxically its relative success over the past several years has earned it a particularly high level of scorn from the media. Goldman is also a case where the sell-side seems to have gotten the message, with 15% earnings per share growth expected next year compared to this year. On a trailing basis, the bank's P/E of 16 is not particularly interesting and its P/B of 0.8 matches JPMorgan's.

Finally, Tenet is a $2.1 billion market cap hospital and diagnostic imaging center operator. The stock is only up 1% this year, underperforming the market. Profits are low and so, while in percentage terms it delivered a good earnings surprise, small changes in margin going forward could substantially impact earnings. Wall Street analysts expect earnings growth in 2013 compared to 2012, but the company's low forward P/E means that it has room for error in delivering shareholder value. We don't think the stock's valuation is particularly low compared to other hospitals, as we discussed in our article about HCA Holdings.

Source: These 7 Stocks Could Pop If They Beat Earnings Again