Market Crash Value Hunting!
Expanding on my earlier mention of household name stocks with P/Es under 10
In my latest article about the market correction, I wrote the following:
Outside of the MAG7 and tech names that are still overinflated, there are many good values. Iconic brands such as Delta Airlines, Ford, GM, Comcast, Fox, and T. Rowe Price all trade with a P/E ratio of less than 10.
I didn’t do any sophisticated research to get these names; all I did was go on my preferred stock screener, Finviz, and look at names in the S&P 500 with P/Es under 10.
For reference, a P/E of 10 means that the value of the stock is ten times earnings; to oversimplify, this means your return if earnings hold steady would be about 10%. P/Es of 10 or less are considered very low; the long term average is something like 16, and it’s not uncommon for growth names to have P/Es of 30+.
Let’s take a look at each of these companies and see whether they make sense as investments.
Delta Airlines
Investing in airline stocks is known to be risky. The history of the airline industry is filled with hero to zero stories: Pan Am, TWA, Eastern, and the list goes on and on. Still, Delta is one of the more reliable carriers, having been around for almost 100 years and carrying almost 20% of US passenger traffic. The last time there was a major downturn in travel, the US government promptly bailed out the airlines (although they ought to have been left to twist in the wind due to their blowing cash on stock buybacks instead of building up savings for just such a crisis, but that’s just my opinion).
Delta is down over 40% from mid-February, probably since there are “concerns over consumers’ travel appetite” (see this CNBC article). However, rumors of declining consumer spending are very different from the actual thing, and so far bearish predictions in that arena haven’t been realized. Tapped out or not, Americans continue to spend money on their credit cards, buy now pay later accounts, and more, despite (mostly) not having $400 to spare in an emergency. Betting on a real downturn in spending feels risky. Additionally, the airlines don’t seem to have much tariff risk—some of their business is international but most of it comes from domestic passengers.
Ford and GM
Ford has a P/E of 6.5 with a yield of 6.5%, while GM has only a 1% yield but a similar P/E of 7. These stocks have been left by the wayside as money has poured into TSLA and other manufacturers of EVs. (For instance, the EV manufacturer Nikola was worth more than GM and Ford at one point in 2020, despite having no revenue and later collapsing amidst securities fraud charges.) However, only 8% of cars sold in the US last year were full EVs. Most people expect that number to grow, perhaps to a majority, but there is no guarantee that will happen. Ford sells mostly trucks, along with the Mustang sports car, and Americans like their trucks and sports cars gas-powered. Ford no longer sells sedans in the United States; when it was announced, this decision was heralded as a shocking failure, but in retrospect may have been a smart move to focus on the most irreplaceable parts of their business. By contrast, GM has a wider range, but has also had more success with EVs than Ford has.
Additionally, Ford and GM could benefit from tariffs. As the domestic manufacturers, they are likely to be hit less hard than foreign manufacturers, and may get some market share from BMW and other imports.
Comcast
No one likes Comcast, but they’re so widely hated because they’re a monopoly, and monopolies make good investments. Comcast is consistently profitable, has a book value of almost three quarters the stock value, and its P/E is about 8 with a 4% dividend.
The problem, per this article, is that the company’s broadband business is struggling. CEO Dave Watson expects further declines after broadband customers dropped by 140,000. However, that 140,000 was out of over 30 million, so represents a decline of less than 0.5%. Additionally, Comcast has other businesses, such as studios, to balance out these declines.
Fox
While it’s had a strong year, Fox has dropped precipitously since the tariff announcement, falling from $53 to $44.50, bringing the P/E ratio to 9.8. It’s not quite clear why, since their business is entirely a service and doesn’t rely on foreign parts, or any parts at all. This may be an example of a general selloff having an irrational impact on certain stocks.
T. Rowe Price
With a dividend yield of 6% and a P/E ratio of 9, T. Rowe Price looks good by traditional value metrics. It has been consistently profitable over the last five years, and has little debt and a relatively simple balance sheet free of the complex arrangements that plague larger banks. It is hard to see how they would be affected by the tariffs, since they provide financial services with no tangible products, yet they are down 50% from highs reached in December. As a 401(k) customer I’m a fan of the business: they offer a solid list of target funds (see my article on the The Rule of 110 for an explanation of target funds) with reasonable fees and a fresh, up-to-date web interface.
A quick Google search reveals that the general market drop is impacting T. Rowe Price, as it means less business for them; that’s a reasonable concern, but even in crashes, investors still buy. Another concern is that T. Rowe’s ETFs are mostly active, and business has been gradually shifting from active to passive. However, as this excellent write up mentions, active funds tend to attract more attention in downturns, and T. Rowe’s active funds have actually been largely outperforming their benchmarks.
Honorable mentions (also P/Es under 10):
United Airlines
PulteGroup (homebuilder)
Lennar (homebuilder)
Halliburton (oil drilling & construction)
Altria (cigarettes)
State Street (investment products)
HP (consumer technology)
Of course, there’s no guarantee that all of these stocks (or any of them) will outperform the market, or even go up. However, it’s a bit exciting because for the past several years, I wouldn’t have even been able to write a piece like this, since there were almost no names in the market that traded in deep value territory. (Hence Warren Buffett’s retrospectively brilliant divestment from the stock market last year.) But now I can—and don’t let my recommendations limit you; check out the stock screener above and do your own research to find a great investment at a great price.
Disclosure: author is long Ford.