These cheap stocks with single-digit P/Es are buys, according to Wall Street

Published Wed, Jun 1 202210:26 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The rough first half of 2022 has brought most stocks down at least a peg or two, but some names look cheaper than others. The S & P 500 is now trading at around 19 times earnings per share, according to FactSet. In 2020 and 2021, the price-to-earnings ratio soared well above 20-times for the index. However, there is wide dispersion on that valuation metric. Typically, growth oriented stocks trade at higher P/E ratios, and then fall further when market sentiment sours. But in broad sell-offs, like Wall Street saw in April and much of May, sometimes even companies with solid fundamentals can get dragged down. The list below shows stocks that have P/Es below 10, but still have buy ratings from more than half of sell-side analysts and have an average price target that shows upside of at least 20%. Source: FactSet One group that is well-represented on the list is homebuilders, with Pulte Group , D.R. Horton and Lennar all making the cut. The housing industry saw strong demand during the pandemic, as low interest rates and strong consumer balance sheets bolstered the sector. However, the Fed's recent move to tighten money supply has boosted interest rates and appears to be slowing that demand, with mortgage applications dropping in recent weeks . Still, if the U.S. economy avoids a recession, homebuilders can have room to grow. PulteGroup CEO Ryan Marshall said at a JPMorgan conference earlier this month that demand had slowed but was still strong overall. "Specific to the point on interest rates, I think it's just one part of the equation when it comes to housing demand and certainly to the affordability equation, it's just part of the story. We've had and continue to have an unbelievable housing market, where demand has far outstripped what supply is there," Marshall said, according to a recording provided by FactSet. To be sure, homebuilders and many other stocks on this list typically trade below the market P/E ratio, so investors should not expect the stocks to jump up and catch the high-flying stocks, even if they outperform. Outside of homebuilders, one stock on the list that has underperformed this year is chipmaker Micron . The stock has a buy rating from roughly 78 of analysts on Wall Street, with an implied upside of more than 50%. Dish Networks is the name on the list with the highest upside, at more than 70%, and it just got another upgrade from Truist . One surprising name on the list, given the success of oil and gas stocks in 2022, is Diamondback Energy . The stock is up more than 40% this year, but it trails many of its energy peers and its P/E was still below 10 as of last week.