10 S&P 500 Stocks to Consider … At Much Lower Prices

The market itself is sitting at lofty valuations, but several S&P 500 stocks are extremely overheated. Consider giving these 10 picks a little time to cool off.

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Analysts might have been bullish about the S&P 500's stocks heading into 2021, but they weren't exactly exuberant.

According to a December report by FactSet Vice President and Senior Earnings Analyst John Butters, analysts' average projection has the S&P 500 Index hitting 4,000.28 by the end of 2021. If the estimate pans out, 2021 would be third consecutive year of positive returns for the index … albeit at a good-but-not-great 6.5% growth rate for the year.

That same report, however, points out that between 2005 and 2019, analysts overestimated the index's end-of-year value on 12 of 15 occasions, by an average of 9.3%. Butters noted that if you applied that 9.3% overestimation to 2021 price targets, the S&P 500 would close 2021 at 3,627.96. If you applied an average 3.4% overestimation (which backs out 2018), you'd get a closing value of 3,864.07.

Either way, from current prices, that implies the S&P 500 might be overcooked.

But the aggregate analyst estimate for the S&P 500 is calculated by combining all of the analyst median target price estimates for all the companies in the index. If they're wrong about the index 80% of the time, that means they're likely wrong about many of the S&P 500's stocks themselves.

Today, we're going to look at 10 S&P 500 stocks that are sound investments for the long haul, but have gotten well ahead of themselves.

We'll look at several metrics, but one that some investors might be less familiar with is cyclically adjusted price-to-earnings ratio, or CAPE. It was created years ago by Yale University economist Robert Shiller, and thus it's also dubbed "Shiller P/E."

The CAPE metric takes a stock's average earnings for the last 10 years, adjusts those earnings for inflation, and then divides that number into its current share price. CAPE takes out any big swings in profits to give investors a more accurate picture of its current price-to-earnings valuation. The S&P 500 currently trades at a Shiller P/E of 35.7, which is among its highest valuations in history. However, eight of the 10 S&P 500 stocks on this list are far more expensive, with CAPEs in excess of 100; the other two are within striking distance.


Data is as of Feb. 11.

Will Ashworth
Contributing Writer, Kiplinger.com

Will has written professionally for investment and finance publications in both the U.S. and Canada since 2004. A native of Toronto, Canada, his sole objective is to help people become better and more informed investors. Fascinated by how companies make money, he's a keen student of business history. Married and now living in Halifax, Nova Scotia, he's also got an interest in equity and debt crowdfunding.