These are the cheapest stocks in the market—but beware a value trap: Technician

Some may call these bargain buys, others may call it a value trap.

Endo International, General Motors, Gilead Sciences, Mylan and Delta Air Lines are the five stocks right now that carry the lowest forward price-to-earnings ratios in the S&P 500.

Translation: these are the names in the market, according to S&P Capital IQ data, that have the lowest ratios of earnings, based on analysts' forecasts, to their current stock price.

Shares of pharmaceutical company Endo have plunged more than 67 percent this year as the company has sought to reduce its more than $8 billion debt.

Mylan, also in the pharmaceutical space, has plummeted 31 percent this year after backlash over increasing the price of its lifesaving EpiPen auto-injectors. And Gilead Sciences has fallen 27 percent year to date after lowered sales guidance and it seeing slower-than-anticipated demand for key hepatitis C drugs.

Endo, Mylan and Gilead have forward earnings ratios of 3.9, 6.6 and 6.7, respectively.

Then there's transportation stocks like General Motors and Delta Air Lines which have lost more than 6 percent and 22 percent, respectively, of their share prices this year. The automotive giant has a price-to-earnings ratio of 5.7 while the airline comes in just under 7.

Is there a case to buy these embattled names that appear to have cheap price tags?

"This is really a lottery ticket trade. You don't know which of them could bounce," Boris Schlossberg, managing director of FX strategy at BK Asset Management, said Tuesday on CNBC's "Trading Nation."

He suggested that investors buy shares of all five companies in small proportion and see which could potentially improve. If even one of the five names with the lowest valuations sees a strong bounce back, Schlossberg said, "it should pay in profits, pretty much, for positions in all of the other four."

"The problem with that idea is that you just don't know which one of them will begin to go back up on a trajectory," he said.

"So I think the best way to play this is to kind of buy the whole basket and then hope that one of them recovers enough to make the money on the whole position."

Top technician Jonathan Krinsky warned that investors should be wary of catching a falling knife.

"Most of them are in pretty severe downtrends, so we generally don't like trying to bottom-fish that," the chief market technician at MKM Partners, said Tuesday on "Trading Nation."

Krinsky said General Motors is one name in the five that may look to reverse its decline.

The automaker is now trading above its 200-day moving average and has trended higher, toward resistance levels of $32 and $33, Krinsky said, and sees breakout potential.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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