There's no denying the market is richly priced at this point in time. Data from Birinyi Associates indicates the S&P 500 (^GSPC -0.22%) is currently valued at 28.8 times trailing 12-month earnings. And even though profits should grow significantly in 2022 from last year's still-suppressed levels, the large-cap index is still priced at 21.2 times its projected 12-month earnings.
Simply put, stocks as a whole are expensive.
But not every stock costs a relative fortune to step into at this time. There are some pockets of value to be found -- if you turn over enough rocks. Here are three such value stocks to consider before January turns into February. All have price-to-earnings (P/E) ratios that are much more reasonable than the market's multiple.
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1. Rent-A-Center
Trailing P/E ratio: 16.5
Forward P/E ratio: 6.5
Rent-A-Center (RCII -0.52%) operates more than 2,000 rent-to-own furniture stores across North America. Appliances, electronics, and even automobile tires are also part of its offerings.
The business itself is not without controversy. Critics claim that Rent-A-Center's promise of seemingly low weekly payments ultimately costs consumers far more than it would to buy that item outright with cash or even purchase it with more conventional credit. Some also say that the rent-to-own model can be disproportionately tough on the poor, who may not be able to purchase furniture or appliances any other way.
For now, the business remains a viable one simply because it fills a gap in the marketplace. Indeed, it may be filling it now more than it ever has despite a firm rebound in employment and the economy. In last year's third fiscal quarter, revenue rose 13% to a record $1.2 billion (excluding an acquisition) while same-store sales increased 12% year over year -- and up 25.2% vs. 2019 pre-pandemic levels, making it clear that this recent growth isn't just the result of a broad economic rebound.
Perhaps the most exciting argument for owning Rent-A-Center now is that the company is rethinking its entire business model in a way that makes it more sustainable and less of a regulatory target. Greater transparency about paths to ownership as well as more purchase options are just a few ways the rent-to-own chain is seeking to evolve for the better.
Investors can plug into this overhaul at a modest 16.5 times the retailer's trailing earnings, which are projected to grow nearly 17% this year.
2. General Motors
Trailing P/E ratio: 8.1
Forward P/E ratio: 8.9
Old-school automobile manufacturers have been out of favor for years now, first in anticipation of 2016's so-called "peak auto" turning point for the entire industry and then by the mainstreaming of electric vehicles without any significant participation from Detroit's iconic names. The recent microchip supply shortage is also problematic for makers of modern cars.
The fact of the matter, however, is that investors have priced in far too much doubt about these companies' prospects. Consider General Motors (GM -0.05%). Shares of the company behind brands like Chevrolet, Buick, and Cadillac are priced at a mere 8.1 times the company's trailing per-share income and only 8.9 times 2022's expected earnings.
What gives? Two things. First, rumors of the automobile's death have been greatly exaggerated. Despite all the logistical and supply chain nightmares still lingering last year, Cox Automotive estimates 14.9 million vehicles were sold in the United States in 2021. That's down from the 17.3 million average we saw between 2015 and 2019, but still solid -- all things considered -- and still 3.5% higher than 2020's count.
Second, while General Motors may have gotten off to a slow start, its electric vehicle business is really starting to rev up now. The company has already earmarked $35 billion worth of investments in EVs to be deployed by the end of 2025, at which point the company says it will be manufacturing 30 different electric vehicles.
GM is clearly moving in the right direction, but the stock's low price suggests investors don't see it yet. Time will take care of that.
3. Comcast
Trailing P/E ratio: 16.4
Forward P/E ratio: 13.8
Investors who know Comcast (CMCSA 1.62%) as parent to cable company Xfinity might be understandably wary. The cable television business is slowly dying.
What most investors may not realize, however, is that cable TV is a small portion of Comcast's business, accounting for only about one-fifth of its top line. Broadband service makes up another fifth or so while its NBC television and Universal Filmed Entertainment Group properties collectively make up yet another fifth of its revenue mix. Assorted business services, phone services, theme parks, advertising as well as the UK's Sky TV channels round out the remainder of the company's annual sales.
In other words, Comcast is a highly diversified media play with a future that's far from hinged on cable television. Yet this diversification isn't being fully reflected in the stock. At their current price, the shares are trading at 16.4 times trailing profits and only 13.8 times this year's projected earnings. Indeed, a once-bullish crowd has dragged the stock from September's high of nearly $62 down to last month's low of about $46 due to concerns that the lingering pandemic is keeping people out of theaters and theme parks at the same time its broadband business's growth is slowing.
It's a pullback that ignores how Comcast is still a cash cow regardless of the state of the cable market. Consumers are able to cut the cable cord specifically because of their broadband connections, and they're doing so because they've got premium and ad-supported streaming options like NBCUniversal's Peacock. Finally, the eventual end of the pandemic will fully restore the company's theme park and film business.
