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Apple, Goldman among Dow's best values after rout

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People entering an Apple store in New York
Adrees Latif | Reuters

With the Dow Jones industrial average down 11 percent from an all-time high reached in May, many of its members are starting to look mighty cheap as fears of a China economic slowdown dislocate share prices from earnings.

CNBC Pro looked at the members of the Dow that have the lowest price-earnings ratio relative to their average P/E of the last five years.

On that basis, most of the biggest values in the Dow are stocks like Apple, names beaten down on the frightening China headlines. Some however, such as Goldman Sachs, could be just a victim of wholesale selling by market participants looking to take risk off.

The first thing we did for this value screen was to throw out any stocks with a current P/E above the average's overall multiple of 15.

Of those stocks, we then looked at the ones with the cheapest P/Es relative to their multiple history.

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United Technologies is first on the list, trading at a 20 percent discount to its historical multiple.

Cowen & Co wrote on Monday that shares of the maker of Otis Elevators and other products sold in China had fallen too far, too fast on fears of slowing growth. The firm has a $116 price target on United Technologies, which would represent a 28 percent gain from here.

Goldman Sachs got an upgrade Monday from Evercore ISI, which sees the stock rallying 18 percent to $215 a share over the next 12 months.

For Apple shares, they did deserve a bit of a haircut because China accounts for about 24 percent of total revenue.

Still, many traders said the tech giant is a victim of being such a widely owned stock that many underwater funds were selling the name just to raise cash.

Apple, along with another cheap Dow member Travelers, were among the value ideas highlighted in a note this Monday by Jason Trennert of Strategas Research.

"For those with longer-term time horizons, we feel confident that there have been real bargains created in the last two weeks, especially in light of recent economic data," wrote Trennert in the note.

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To be sure, Dow stocks may be getting cheaper for a reason other than China: rising interest rates. Historically, periods of higher rates meant lower earnings multiples for stocks and so if the Fed is getting ready to hike for the first time in nearly a decade, you can throw this type of valuation analysis out the window.

On the flip side, some Dow members remain significantly overvalued despite the recent pullback in stocks.

Microsoft's P/E is double its historical average. Nike, which has a significant China business, trades at a big premium as well.

High interest rates or not, these names look vulnerable for further declines.

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