The S&P 500 has surged more than 300% since the depths of the financial crisis in March 2009. But today, rising interest rates and escalating trade tensions are causing many investors to wonder if the aging bull market has finally run out of room to run.
The S&P 500 isn't cheap at 24 times earnings, but its forward P/E of 17 also doesn't seem terribly high. However, it can be tough to find stocks that still trade at discounts to the overall market. Today, I'll highlight four rock-solid stocks that trade at less than 15 times forward earnings and pay decent dividends.
Image source: Getty Images.
HP
HP (HPQ) is the biggest PC maker in the world. Its printing business, which recently acquired Samsung's printing unit, is also one of the world's top manufacturers of consumer, commercial, and 3D printers.
PCs and printers might seem like slow growth businesses. However, HP's PC business continues to grow at the expense of rivals like Lenovo thanks to robust sales of its higher-end laptops and convertible devices. Its printing business also continues to thrive, buoyed by demand for new multifunction printers, mobile printers, and industrial 3D printers.
Wall Street expects those growth engines to boost HP's revenue and earnings by 11% and 21%, respectively, this year. That's an impressive growth rate for a stock that trades at just 11 times forward earnings. HP also pays a forward dividend yield of 2.5%.
Apple
Apple (AAPL) generates most of its revenue from iPhones, iPads, and Macs. But in recent years it's expanded that ecosystem to include software services like Apple Pay, Apple Music, the App Store, and iCloud.
Shipments of iPhones, which generated 62% of Apple's revenues last quarter, are gradually slowing down. However, Apple offset slower shipments with higher prices in recent quarters, and a new generation of cheaper devices could boost its shipment volumes again this year. Apple's Services revenue also jumped 31% annually last quarter, accounting for 15% of its top line.
Apple's ongoing software expansion -- along with its repatriation of nearly $300 billion in cash for buybacks, dividends, and domestic acquisitions -- should continue boosting its revenue and earnings. Wall Street expects Apple's revenue and earnings to grow 14% and 25%, respectively, this year. Yet the stock trades at just 14 times forward earnings, and currently pays a forward dividend yield of 1.6%.
Apple's iPhone X. Image source: Apple.
Altria
Altria (MO), the maker of Marlboro, is the largest tobacco company in America. Most of its revenue came from the US market after it spun off its overseas unit as Philip Morris International in 2008. Altria also sells cigars, snuff, wine, and e-cigarettes. Revenue from its wine and "smokeless" businesses accounted for 13% of its sales last quarter.
Altria's core business might seem like a dying one due to waning smoking rates in America. However, the company consistently offsets declining cigarette volumes with price hikes, cost cutting measures, and stock buybacks. These moves help Altria keep growing earnings and dividends even as its revenue growth stagnates.
That's why Wall Street expects Altria's earnings to grow 18% this year, even as its revenues rise less than 1%. The stock trades at just 13 times forward earnings, and pays a forward dividend yield of 4.9% -- which is more than double the S&P 500's current yield of 1.9%.
AT&T
AT&T (T) is America's second largest wireless carrier, largest wireline services provider, and top pay TV services provider. Its recent acquisition of Time Warner also makes it one of the biggest media companies in the world.
Like many of its rival telcos, AT&T struggled with slowing growth in postpaid smartphone subscriptions and a loss of pay TV subscribers to OTT players like Netflix. To counter these trends, AT&T is bundling data-free streaming video with its wireless plans, expanding its advertising ecosystem across multiple platforms, and launching new wireless plans for wearables, connected cars, and other gadgets.
Analysts expect AT&T's revenue and earnings to grow 8% and 11%, respectively, this year. Fresh synergies with Time Warner could help AT&T easily clear those estimates, since the telco predicted that the deal would be accretive to its adjusted EPS and free cash flow within the first year. AT&T trades at just 9 times earnings, and pays a forward dividend yield of 6.2% -- making it one of the cheapest income plays on the market today.
The key takeaways
HP, Apple, Altria, and AT&T are very different types of companies, but they all dominate their industries with wide moats. Investors who buy these rock-solid stocks while they trade at discounts to the broader market could be well-rewarded in the future.
