With the S&P 500 trading at an average price-to-earnings (P/E) multiple of 45, stocks are getting pricey versus their historical average of 16. In times like these, investors might want to consider looking at value stocks like Phillip Morris International (PM 1.21%) and Dollar General (DG -0.34%), which trade at low multiples relative to their earnings and growth potential.

Let's explore the reasons why these companies offer great bang for your buck. 

1. Phillip Morris International (PMI)

With a forward P/E multiple of 15, PMI stock is valued significantly cheaper than the market average but higher than rivals Altria and Vector Group, which trade for 10 and 14 times earnings, respectively. PMI deserves its premium because of its focus on reduced-risk tobacco products, which can shield it from regulatory uncertainty. 

Stock chart representing growth

Image source: Getty Images.

According to the Wall Street Journal, the Biden administration may force tobacco companies to lower nicotine levels in cigarettes. This move could push millions of smokers to quit or transition to less dangerous alternatives like PMI's IQOS -- a heated tobacco system that releases nicotine through heating instead of burning.

But PMI isn't waiting on the government to "force" it to make its products safer. The company is currently selling its smoke-free products in 66 countries and plans to expand to 100 countries by 2025. In 2020, the FDA authorized IQOS as a modified risk tobacco product, paving the way for PMI's U.S. partner, Altria, to commercialize the system in the U.S. and pay licensing fees back to PMI. 

Phillip Morris International expects revenue growth of 5% to 7% in 2021 (roughly $30.4 billion at the mid-point). Smoke-free products represented 28% of sales as of the first quarter, and management expects to boost that to over 50% by 2025. The stock also sports a dividend yield of 4.9% and has increased its payout for 12 consecutive years. 

2. Dollar General 

Dollar General operates a chain of discount retail stores offering consumable products, beauty supplies, and other household items. The stock is an excellent pick for value-conscious investors because of its relatively low forward P/E multiple of 20 and its consumer staple business model, which helps it hold its own in challenging economic environments. 

Like many grocery stores, Dollar General benefited immensely from the coronavirus pandemic, which led to more customer return trips and larger basket sizes. This tailwind will likely trail off as the U.S. economy normalizes. But management believes that some positive changes in consumer behavior may become permanent. Dollar General has also expanded its market share among younger, more digitally savvy consumers, which could boost the uptake of its online ordering app.  

Fourth-quarter net sales increased roughly 18% year over year to $8.4 billion, while operating profit grew by 21% to $872 million in the period. 

Management expects net sales to decline 2% (to around $33 billion) in the fiscal year 2021, which isn't bad against last year's pandemic-boosted comps. Dollar General also returns value to investors through its share buyback program -- repurchasing $2.5 billion worth of shares in 2020. In 2021, the board increased the authorization by $200 million for a total of roughly $2.7 billion as of March. Dollar General does pay a quarterly dividend, although it currently has a yield of only 0.82%. With a dividend payout ratio of only 13.6%, there is plenty of room for Dollar General to cover increases in the Dividend going forward. 

Betting on safer stocks

Value stocks tend to have fewer expectations built into their valuations, making them an excellent way to reduce risk in an arguably overvalued market. Phillip Morris International and Dollar General have the added benefit of operating in resilient crisis-proof industries and returning value to investors through large dividend payments and share repurchases.