These cheap stocks could see huge gains during a vaccine-driven economic rebound

2:25 pm ET September 22, 2020 (MarketWatch) Print

By Philip van Doorn, MarketWatch

When analysts raise their earnings estimates, shares of some of the hardest-hit companies will begin to bounce back

There's no doubt that the coronavirus economy has been terrible for value stocks. But with expectations growing that there will be effective COVID-19 vaccines late this year or sometime in 2021, it's time to think about which stocks that have been hit so hard this year will soar as earnings expectations normalize.

First, here's a comparison of performance for the benchmark S&P 500 index this year with the Vanguard S&P 500 Growth ETF (VOOG) Vanguard S&P 500 Value ETF (VOOV):

"Many of today's Value stocks have faced particularly acute challenges from the coronavirus and will experience the sharpest rebounds in earnings expectations once investors have confidence in the path to normalization," Goldman Sachs chief U.S. equity strategist David Kostin wrote in the firm's "Weekly Kickstart" report on Friday.

Increasing earnings estimates tend to drive stock prices higher, and for slower-growing companies, rising estimates as recovery expectations solidify, and even P/E multiple expansion, can lead to significant gains for investors who are willing to go in now and wait. Patiently.

If you are confident that one or more of the massive COVID-19 vaccine-development projects will be successful this year or in 2021, the value-rebound thesis may help you outperform over the next two years. Why two years? Even if there is surprisingly quick success with a vaccine, there are likely to be shortages and other deployment delays. So it seems prudent to look out to 2022 for earnings estimates and price-to-earning valuations.

Among the S&P 500, consensus 2022 earnings estimates are available from FactSet for 483 companies. Five of those are expected to continue losing money that year, making price-to-earnings valuations meaningless.

Among the remaining 478 constituents of the S&P 500, here are the 30 that are the most cheaply priced against calendar 2022 consensus earnings estimates:

Company Ticker Price/ consensus calendar 2022 EPS estimate Total return - 2020 through Sept. 21

Lincoln National Corp. US:LNC 3.0 -45%

Unum Group US:UNM 3.0 -39%

Mylan NV US:MYL 3.2 -26%

DXC Technology Co. US:DXC 3.9 -53%

Western Digital Corp. US:WDC 4.5 -42%

Prudential Financial Inc. US:PRU 5.0 -28%

Citigroup Inc. US:C 5.1 -43%

American International Group Inc. US:AIG 5.3 -46%

General Motors Co. US:GM 5.6 -17%

MetLife Inc. US:MET 5.7 -24%

H&R Block Inc. US:HRB 5.7 -36%

Invesco Ltd. US:IVZ 5.7 -40%

ViacomCBS Inc. Class B US:VIAC 5.9 -29%

Synchrony Financial US:SYF 5.9 -26%

Principal Financial Group Inc. US:PFG 6.0 -26%

Discovery Inc. Class A US:DISCA 6.0 -32%

Hartford Financial Services Group Inc. US:HIG 6.1 -39%

Capital One Financial Corp. US:COF 6.3 -30%

Discover Financial Services US:DFS 6.3 -33%

HollyFrontier Corp. US:HFC 6.4 -57%

Ford Motor Co. US:F 6.4 -25%

AbbVie Inc. US:ABBV 6.5 5%

Walgreens Boots Alliance Inc. US:WBA 6.6 -37%

Diamondback Energy Inc. US:FANG 6.6 -65%

Delta Air Lines Inc. US:DAL 6.8 -49%

KeyCorp US:KEY 6.8 -38%

Xerox Holdings Corp. US:XRX 6.9 -49%

NRG Energy Inc. US:NRG 6.9 -25%

Wells Fargo & Co. US:WFC 6.9 -54%

Source: FactSet

You can click on the tickers for more about each company.

Here's the list again, this time with analysts' ratings and price targets. Scroll the table at the bottom, to the right, to see all the data.

Company Ticker Share 'buy' ratings Share neutral ratings Share 'sell' ratings Closing price - Sept. 21 Cons. price target Implied 12-month upside potential

Lincoln National Corp. US:LNC 50% 50% 0% $31.54 $44.64 42%

Unum Group US:UNM 9% 73% 18% $17.12 $21.00 23%

Mylan NV US:MYL 65% 35% 0% $14.78 $22.00 49%

DXC Technology Co. US:DXC 54% 46% 0% $17.32 $23.54 36%

Western Digital Corp. US:WDC 60% 37% 3% $36.09 $51.25 42%

Prudential Financial Inc. US:PRU 16% 69% 15% $64.73 $71.00 10%

Citigroup Inc. US:C 85% 15% 0% $43.93 $67.85 54%

American International Group Inc. US:AIG 50% 50% 0% $26.98 $37.21 38%

General Motors Co. US:GM 83% 17% 0% $30.00 $38.88 30%

MetLife Inc. US:MET 62% 38% 0% $37.43 $45.80 22%

H&R Block Inc. US:HRB 33% 56% 11% $14.18 $17.57 24%

Invesco Ltd. US:IVZ 11% 67% 22% $10.22 $10.43 2%

ViacomCBS Inc. Class B US:VIAC 40% 56% 4% $28.99 $27.53 -5%

Synchrony Financial US:SYF 70% 30% 0% $25.90 $28.76 11%

Principal Financial Group Inc. US:PFG 18% 82% 0% $39.00 $47.80 23%

Discovery Inc. Class A US:DISCA 38% 58% 4% $22.42 $24.67 10%

Hartford Financial Services Group Inc. US:HIG 76% 24% 0% $36.24 $52.20 44%

Capital One Financial Corp. US:COF 69% 22% 9% $71.65 $80.38 12%

Discover Financial Services US:DFS 63% 33% 4% $55.02 $61.45 12%

HollyFrontier Corp. US:HFC 42% 47% 11% $21.21 $31.81 50%

Ford Motor Co. US:F 17% 78% 5% $6.87 $7.41 8%

AbbVie Inc. US:ABBV 74% 26% 0% $89.09 $110.00 23%

Walgreens Boots Alliance Inc. US:WBA 5% 86% 9% $35.79 $40.94 14%

Diamondback Energy Inc. US:FANG 89% 11% 0% $32.08 $58.72 83%

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September 22, 2020 14:25 ET (18:25 GMT)