11 Cheap Stocks for a Market That’s Too Expensive

Evercore screened for stocks that have lower price tags but also some staying power. (Michael Nagle/Bloomberg)

Key Points

• Evercore strategists identified cheap stocks in the US market that are also in favor with investors, including FedEx and Delta Air Lines.
• Non-cyclical options from the screen include Humana, Verizon, UGI, and PG&E, offering alternatives to economically sensitive stocks.
• Regeneron trades at 15 times expected earnings, below the S&P 500’s 23 times, with sales estimates up and shares rising 21% from lows.

The market is too expensive to buy right now, so Evercore strategists screened for select cheap stocks that could rally from here.

The S&P 500 is up 15% this year, having touched several new records. It’s trading extremely expensively and if any of what underpins the rally—lower inflation, falling interest rates, and continued investment in artificial intelligence—becomes destabilized, the market will drop**.**

That’s why this week we published a piece pointing out stocks that don’t appear to have benefitted from all the portfolio manager money that’s conceivably out there for them. Those stocks could attract more buying if their fundamentals come in better than expected.

Meanwhile, Evercore strategists screened for the cheaper stocks in the U.S. market. The key is that they didn’t just screen for cheap names. Those can often remain cheap because of weak fundamentals, making them poor investments. The stocks Evercore identified are in the first and second quintiles of the bank’s statistical sentiment score, meaning that they’ve been in favor with investors. The point is that anyone considering these stocks doesn’t have to worry that they’re going to underperform as long as the businesses continue to perform as they recently have.

Some names on the screen are FedEx , Delta Air Lines , United Airlines Holdings , chip maker Qorvo, General Motors, and Ford Motor.

The one caveat is that these names are all typically “cyclical.” That means they tend to see significant downside when the economy disappoints. That could happen if inflation remains above the Federal Reserve’s target, translating to fewer interest-rate cuts than the market currently expects.

Investors who want to pick from this screen but want to avoid the cyclical stocks can consider the ones in non-cyclical industries: health insurer Humana, telecom Verizon Communications, and utilities UGI and PG&E.

Another non-cyclical is drugmaker Regeneron . It trades at about 15 times expected earnings for the coming twelve months, below the S&P 500’s 23 times. It could be too cheap. The multiple dropped from almost 25 times in the summer of 2024 as the stock began a nasty slide. The culprit was that Amgen had started making a macular degeneration product to compete with Regeneron’s Eylea, so analysts slashed earnings estimates.

The good news is that the entire picture for Regeneron seems to have stabilized. Sales estimates are up a few hundred million dollars over the last few months, according to FactSet, and sentiment on the stock has improved, with shares up 21% from their lows hit earlier this year.

Looking ahead, Regeneron and Amgen can share the macular degeneration market. Analysts forecast Eylea HD, Regeneron’s new, longer-acting treatment, will grow from $1.6 billion this year to $2.5 billion by 2030, according to FactSet, while Amgen’s Pavblu can reach over $600 million by 2030.

Meanwhile, Regeneron has many other drugs that are growing, which is why analysts expect total sales to grow 6.3% annually to almost $19 billion by 2030.

That could bring profit margins higher, especially as the company has already moved past much of its research-and-development spending for many of the new drugs. Earnings per share can grow close to 9% annually. As long as that growth materializes over the coming quarters, the stock can head higher.

Stay on the cheap side of the market.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com