Let's face it: Many stocks are ridiculously expensive. Even after the recent pullback, the S&P 500 index remains only 3% or so below its all-time high. The Shiller cyclically adjusted price-to-earnings (CAPE) ratio for the index is at its highest level since 2000.
But some stocks are definite outliers. If you've got $1,000 to invest, these three stocks are still absurdly cheap.
Image source: Getty Images.
1. Viatris
Viatris' (VTRS 1.67%) valuation is so low that I had to double-check the numbers. But shares of this drugmaker actually do trade at less than 3.4 times expected earnings. If Viatris chose to use its profits on stock buybacks, it could scoop up every outstanding share by mid-2025.
The company isn't going to do that, of course. Viatris' main priorities for using its capital are to pay down debt and to fund its dividend program. Its dividend ranks as a key attraction for investors with a yield of nearly 3.4%.
No, Viatris isn't going to be a fantastic growth story anytime soon. Of course, with its rock-bottom valuation and solid dividend, it doesn't have to be. But the company's growth prospects are likely to improve over the next few years.
Viatris' Semglee biosimilar to Lantus is already winning spots on top drug formularies. The company recently won a key legal victory for its generic version of Biogen's multiple sclerosis drug Tecfidera. It should be in a great position to be the first to file for approval of a biosimilar to blockbuster eye-disease drug Eylea. Viatris' pipeline also includes several other biosimilars, generics, and injectables that are close to potentially winning approvals.
2. AbbVie
Another drugmaker isn't quite as inexpensive as Viatris but still sports a quite attractive valuation. AbbVie's (ABBV -1.03%) shares trade below nine times expected earnings. And that's after the stock jumped more than 20% this year.
Is the loss of U.S. exclusivity for top-selling Humira in 2023 enough to warrant AbbVie's bargain price tag? Maybe, but I think the pessimism is overdone. Although Humira's sales will certainly decline a lot, they won't evaporate.
More importantly, AbbVie has several drugs that should contribute growth to help offset Humira's lower sales. Newer autoimmune disease drugs Skyrizi and Rinvoq are key components of the company's post-Humira strategy. Although Rinvoq's sales will be lower than hoped due to the U.S. Food and Drug Administration's warnings for JAK inhibitors, it should still be a big winner.
Don't overlook AbbVie's dividend yield of nearly 4.4%. The company is one dividend increase away from becoming a Dividend King -- members of the S&P that have raised their dividends for at least 50 consecutive years. Expect AbbVie to keep its dividend increase streak going.
3. Enterprise Products Partners
It's not just pharma stocks that are available at discounts. Shares of midstream energy company Enterprise Products Partners (EPD 0.48%) currently trade at less than 10 times expected earnings.
The oil and gas industry has made a solid comeback as the global economy reopened in 2021. Demand is expected to reach 2019 levels again in 2022. That's good news for Enterprise, the world's largest exporter of liquified petroleum gas and a major operator of oil and natural gas pipelines.
Arguably the biggest knock against Enterprise Products Partners is that there's a transition in progress away from fossil fuels to renewable energy sources. The company thinks, though, that it will continue to benefit from growth in the demand for petrochemicals and natural gas over the next two decades.
Enterprise also offers investors a juicy dividend yield of more than 8.5%. The company has increased its dividend for 23 consecutive years.
