It's tough finding bargain stocks when equity benchmarks are trading at record levels. Happily, the cliche about a rising tide lifting all boats isn't true when it comes to bull markets.
After all, the S&P 500 is weighted by market capitalization as opposed to price, meaning much of the index's gains have been driven by mega-cap tech stocks like the Magnificent 7.
While the S&P 500 is sitting on a 25% price gain for the year to date, the equal-weight S&P 500 is up an impressive but more modest 18%. So there must be some bargains in there somewhere, right?
Probably.
First, a caveat about valuation: As Warren Buffett likes to say, price is what you pay; value is what you get.
Although it's absolutely foundational to long-term performance, value takes its own time to work out. These time frames can be much longer than we expect.
It's also important to note that often cheap stocks are cheap for a reason.
Best bargain stocks
At any rate, with the holidays upon us, it seems like a good time to sift through the broader market to find bargain stocks.
So we screened the S&P 500 Value Index, which classifies S&P 500 index constituents as value stocks based on their book value, earnings and price-to-sales ratios.
Within this universe of value stocks, we further screened for names trading at a discount of at least 20% to the S&P 500 on a forward earnings basis.
More importantly, we wanted to see how fast these stocks were rising relative to their growth prospects. For that, we looked at the price/earnings-to-growth (PEG) ratio, screening for names that trade at a minimum 50% discount to the broader market.
And, to ensure our bargain stocks are more likely to create than destroy value, we limited ourselves to high-conviction Buy-rated names with at least 10 Strong Buy recommendations from industry analysts.
A note on our methodology: S&P Global Market Intelligence surveys analysts' stock recommendations and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell.
Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call. In other words, lower scores are better than higher scores.
Without further ado, below please find Wall Street's best bargain stocks to buy now. Stocks are listed by PEG ratio, from lowest to highest.
