Finding Value in a Hot Market
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the current stock market boom, P/E ratios continue to climb higher and higher. It has become increasingly difficult to find stocks that appear undervalued based on their current P/E. The S&P 500 currently trades at a P/E of 19.29 versus a historical average of 15.49. Either investors are expecting more growth in the economy, or the market has gotten a bit ahead of itself.
However, there is still value to be found in the market. These three stocks are trading at very reasonable P/E ratios and attractive growth opportunities going forward.
Capitalize on Increased Travel
InterContinental Hotels Group PLC (NYSE: IHG) owns, manages, franchises, and leases hotels and resorts worldwide. The company operates hotels under various brands, including InterContinental, Crowne Plaza, Hotel Indigo, Holiday Inn, Holiday Inn Express, Staybridge Suites, Candlewood Suites, EVEN Hotels, and HUALUXE Hotels and Resorts. The company has 4,600 properties in 100 countries.
The company's growth opportunities lie in the anticipated increase in leisure and business travel. TripAdvisor recently published a survey showing that 42% of US travelers were planning to increase their travel spending in 2013. The Global Business Travel Association also released a report showing that business travel should increase by 5.1%. These numbers, combined with a booming US stock market, bode well for InterContinental.
The company currently trades at a P/E ratio of 14.99. This is well below the S&P P/E and the company's five-year average P/E of 22.37. More importantly, major competitors Marriott and Starwoods trade at P/E ratios of 23.64 and 27.32, respectively.
Another Play on Vacation Spending
Six Flags Entertainment Corporations (NYSE: SIX) owns and operates 18 amusement and water parks in the US, Mexico, and Canada.
The company is also in a position to benefit from the booming market as consumer wealth grows. The increase in travel and entertainment spending could bode well for Six Flags. Additionally, the company is already seeing strong growth in 2013. Revenues in the first quarter of 2013 were up 32% and park attendance increased 41%.
Six Flags trades at a P/E of 11.36, well below the S&P ratio. The company's closest competition, Cedar Fair, trades at a lofty P/E of 42.94.
A Sleeping Giant
Apple (NASDAQ: AAPL) designs, manufactures, and markets mobile communication and media devices, personal computing products, and portable digital musical devices. The company has 250 retail stores in the US and 140 stores internationally.
Apple has been making headlines for several years, but the recent news has not been good for the company. The stock price has dropped dramatically from its 52-week high above $700. Investors have been critical of the company's margins and growing competition. However, there are rumors of new products, any one of which could prove to be a growth opportunity for the company. An iWatch or updated iTV could be the next big product for Apple. A cheaper iPhone or large screen iPhone could also be successful products for the company.
At a P/E ratio of 10.34, the company is priced for zero growth in the future. The five-year average P/E is 16.19, while major competitor Microsoft is trading at a P/E of 17.88. The company appears deeply undervalued if you believe that there are new products on the horizon.
All three of these stocks are trading below the current S&P P/E ratio and have future growth prospects that make them attractive investment opportunities. The companies also trade well below the levels of their major competitors. Two of the companies should benefit from the strengthening US economy and consumers who feel a bit wealthier. Apple is priced at a point where any new product development could lead to significant expansion in the P/E multiple.
As the markets continue the upward trend, value can still be found. You may just have to look a little harder to find it.
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