Equities remain expensive despite a higher interest rate environment, and a few names look especially costly.
With the yield on the benchmark 10-year Treasury creeping back up above 4.8%, investors are worrying that the Federal Reserve will maintain constrained monetary policy for longer than expected.
This convergence of factors, coupled with geopolitical turmoil and higher valuations on Wall Street, is creating a difficult picture for stocks, according to JPMorgan's Marko Kolanovic. The firm's chief global markets strategist said Tuesday that equities climbing higher in a high interest rate environment is "unsustainable."
"Our outlook is likely to remain cautious as long as interest rates remain deeply restrictive, valuations expensive, and the overhang of geopolitical risks persists," he said in a note Monday. "Equities are up YTD mostly on multiple expansion while real rates and cost of capital are moving deeper into restrictive territory."
Using the new CNBC Pro stock screener tool, we compiled a list of pricey names that analysts are cautious on, based on the following criteria:
- Current price-earnings ratio is higher than the average P/E over the past 5 years.
- Consensus analyst rating of sell or hold.
A given company's P/E ratio is a measure of a company's value calculated by dividing the current stock price by its earnings per share.
For context, the longer-term P/E ratio for the past 12 months of the S&P 500 is about 21 times trailing earnings. Over the next 12 months, the S&P 500 is currently trading at about 18.2 times earnings, according to FactSet.
Expensive stocks analysts are cautious on
| Symbol | Company | P/E 5Y Avg | P/E TTM | Analyst Consensus |
|---|---|---|---|---|
| HPE | Hewlett Packard Enterprise Co | 11.57 | 20.97 | Hold |
| HSIC | Henry Schein Inc | 18.55 | 21.04 | Hold |
| IBM | International Business Machines Corp | 19.87 | 67.88 | Hold |
| MOH | Molina Healthcare Inc | 18.55 | 22.55 | Hold |
| PGR | Progressive Corp | 16.69 | 34.22 | Hold |
| PNW | Pinnacle West Capital Corp | 18.49 | 23.52 | Hold |
| PRU | Prudential Financial Inc | 13.62 | 31.99 | Hold |
| TSN | Tyson Foods Inc | 9.50 | 50.93 | Hold |
Source: CNBC PRO stock screener
IBM made the list. The majority of analysts covering the stock rate it a hold. The tech hardware giant has a P/E ratio of 67.88 for the past 12 months. That compares to a five-year average P/E ratio of 19.87.
IBM will post its third-quarter results Oct. 25. UBS analyst David Vogt anticipates the company will report revenue and non-GAAP EPS below the Wall Street firm's prior forecast, according to an investor note Monday. In addition to cutting expectations for revenue and earnings, UBS also trimmed its forecast for IBM's software growth.
The firm has a sell rating on IBM. Shares are down 0.8% in 2023.
Premier U.S. beef exporter Tyson Foods is also on the list, with a five-year P/E ratio of 9.5 compared to a trailing 12-month reading of 50.93. Analysts polled maintain a consensus rating of hold.
Shares have slipped nearly 24% from the start of the year.
Finally, Prudential Financial also made the cut. The life insurer's 12-month trailing P/E ratio came in at 31.99, compared to its five-year average P/E ratio of 13.62. Most analysts covering the stock rate it a hold.
In September, Jefferies upgraded Prudential shares to hold, noting that the company had recently taken steps to strengthen its excess capital position.
"While it is not clear to us that these developments will result in increases in capital return, we feel they put the company in a stronger capital position going forward," Jefferies said.
Shares are off nearly 3% in 2023.
Other names in CNBC Pro's screen include Hewlett Packard Enterprise, health-care products distributor Henry Schein, health insurer Molina Healthcare and energy holding company Pinnacle West Capital.
— CNBC's Michael Bloom and Darla Mercado contributed reporting.
