In this piece, we will take a look at seven mid cap stocks with low PE ratios.
The stock market has experienced a surge in activity recently, driven by positive investor sentiment and key decisions from the Federal Reserve. Even though the month of September began on a volatile note, with stocks facing multiple hurdles, optimism ultimately prevailed as markets ended the quarter on a high note. Throughout this period, the Federal Reserve’s policy moves played a crucial role in shaping market dynamics. By implementing interest rate cuts, the Fed provided much-needed relief to the markets, contributing to gains in major indices. Despite the ups and downs, investors managed to navigate the turbulent waters and ended up with a more positive outlook.
The rise in investor optimism can be attributed to various factors, including strong corporate earnings, positive economic indicators, and a general belief that the Fed will maintain its accommodative stance. This period has been marked by record gains in the equity market, leaving investors hopeful for continued growth. However, despite the bullish sentiment, caution still lingers as the market enters the historically volatile month of October. Concerns over potential economic slowdowns, geopolitical tensions, and unpredictable interest rate policies remain in focus.
Amidst these market movements, interest rate fluctuations have become a critical point of discussion. The Federal Reserve’s recent rate cuts were intended to support economic activity, yet the comments from Fed officials suggest that future rate decisions are not set in stone. As the Fed Chair mentioned in a recent statement, the central bank is not in a hurry to implement further rate cuts and will remain data-dependent in its approach. This cautious stance has left investors closely monitoring economic indicators and Fed communications for signs of the central bank’s next moves.
In parallel with interest rate dynamics, the short-term funding market has also shown signs of stress. The Secured Overnight Financing Rate (SOFR), which measures the cost of borrowing cash overnight collateralized by Treasury securities, saw a notable increase. This rise in short-term borrowing costs reflects tighter liquidity conditions, especially at the end of the month and quarter. While such fluctuations are not uncommon during these periods, the recent surge has raised some concerns about the availability of cash in the market and potential funding pressures. The market’s response to these developments has been mixed, with some strategists suggesting it might be a temporary phenomenon, while others believe it could signal more persistent challenges in the funding markets.
Another critical indicator of market liquidity, the repo rates, also experienced upward pressure. This spike in repo rates can be a sign of scarce cash for financial institutions, and if left unaddressed, it could create further uncertainty in the markets. Analysts have pointed out that while short-term borrowing costs tend to rise at quarter-ends due to balance sheet adjustments by financial institutions, the magnitude of this increase was unexpected, indicating that the market’s capacity to provide liquidity might be more constrained than initially thought.
Moving forward, market participants will be paying close attention to economic data releases and the Fed’s future guidance on interest rates. With labor market data and inflation reports due later this month, any surprises could lead to heightened market volatility. Moreover, given October’s reputation for dramatic market swings, investors are likely to adopt a more cautious approach, balancing between optimism for continued growth and concern over potential setbacks.
A recent report by Reuters highlighted that despite the current funding pressures, the Federal Reserve remains confident in its ability to manage liquidity. The introduction of facilities like the Standing Repo Facility (SRF) aims to ensure that banks and other financial institutions have access to cash when needed, reducing the likelihood of market disruptions. While Monday’s surge in SRF activity was notable, subsequent declines suggest that these pressures might be temporary. Still, the Fed’s ongoing efforts to monitor and respond to changes in the repo and short-term funding markets will be crucial for maintaining stability in the months ahead.
As the market navigates these uncertain times, many investors are looking for opportunities in mid-cap stocks that offer strong growth potential at attractive valuations. One key indicator that has drawn interest is the price-to-earnings (P/E) ratio, which can provide insights into whether a stock is overvalued or undervalued relative to its earnings. While low PE ratios are attractive, they could also indicate value traps, therefore investors should conduct their own due diligence before initiating positions.
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Our Methodology
For this article, we used the Finviz screener and identified 20 stocks with market cap of less than $10 billion and having forward price to earnings (P/E) ratio of less than 5 as of October 2. We narrowed down our list to 7 stocks and ranked them in ascending order of the P/E ratio. We also examined Insider Monkey’s data on 912 hedge funds as of Q2 2024 and mention the hedge funds holdings in each stock.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
07. Avis Budget Group, Inc. (NASDAQ:CAR)
Forward P/E ratio as of October 2: 4.11
Number of Hedge Fund Holders: 33
Avis Budget Group, Inc. (NASDAQ:CAR) is a prominent car rental and mobility solutions provider with a diversified portfolio of brands such as Avis, Budget, and Zipcar. The company’s focus on value-conscious and premium segments, coupled with its extensive global reach, makes it an attractive candidate for the list of mid-cap stocks with low Price-to-Earnings (P/E) ratios. As of October 2, 2024, Avis Budget Group, Inc. (NASDAQ:CAR) has a forward P/E ratio of 4.11, making it a compelling investment option in the mid-cap space. Additionally, the stock was held by 33 hedge funds at the end of Q2 2024, an increase from 30 in the previous quarter, indicating growing interest from institutional investors.
The company reported strong financial performance in its Q2 2024 earnings, achieving revenue of over $3 billion and adjusted EBITDA of $214 million. Avis Budget Group, Inc. (NASDAQ:CAR) focus on optimizing fleet management, driving utilization, and enhancing pricing strategies has helped the company navigate industry challenges and maintain profitability. The Americas segment, which generated nearly $2.4 billion in revenue, saw rental days increase by 1% year-over-year, setting a second-quarter record. The company’s emphasis on fleet optimization resulted in significant improvements, with fleet size down over the prior year and utilization in June 2024 exceeding the same period last year.
Avis Budget Group, Inc. (NASDAQ:CAR) strategic pricing decisions have been another key driver of its performance. While overall pricing was down 3% year-over-year, it showed a sequential improvement, ending the quarter with pricing down just 2% in June. This strategic approach has enabled the company to achieve higher margin benefits while maintaining demand. The focus on pricing over volume, supported by its proprietary demand fleet pricing system, has allowed Avis to remain competitive in the market.
Additionally, the international segment contributed nearly $700 million in revenue, with rental days up 5% year-over-year. Avis Budget Group, Inc. (NASDAQ:CAR) strong performance in cross-border travel and international inbound volume reflects its robust presence in the European market. The company’s continued investment in technology and operational efficiencies, along with its effective cost management strategies, position it well for sustainable growth in the future. Overall, Avis Budget Group, Inc. (NASDAQ:CAR) solid financial fundamentals and low P/E ratio make it an appealing choice among mid-cap stocks for value-seeking investors.
06. Valaris Limited (NYSE:VAL)
Forward P/E ratio as of October 2: 3.98
Number of Hedge Fund Holders: 39
Valaris Limited (NYSE:VAL) is a major provider of offshore contract drilling services, operating across multiple regions, including the Gulf of Mexico, South America, the North Sea, the Middle East, Africa, and the Asia Pacific. The company’s extensive fleet of offshore drilling rigs—comprising drillships, semisubmersible rigs, and jackup rigs—positions it well to capitalize on the growing demand for oil and gas exploration. Valaris is a compelling mid-cap stock with a forward P/E ratio of just 3.98 as of October 2, 2024, making it an attractive inclusion in the list of mid-cap stocks with low P/E ratios.
Valaris Limited (NYSE:VAL) reported strong Q2 2024 earnings, showcasing its robust financial performance and operational efficiency. The company delivered an adjusted EBITDA of $139 million, significantly up from $54 million in the first quarter, and $150 million when excluding one-time reactivation costs. This growth was driven by a 99% revenue efficiency rate during the quarter, reflecting effective contract management and optimal utilization of its fleet. The company’s backlog also increased for the seventh consecutive quarter, reaching over $4.3 billion, highlighting its strong positioning in the offshore drilling market.
Moreover, Valaris Limited (NYSE:VAL) strategic execution of securing new contracts contributed to its backlog growth. The company recently announced a multi-year contract for Valaris DS-17, adding nearly $500 million to its backlog at a leading-edge day rate, which reflects the strength of customer demand in this space. Additionally, the average day rate for Valaris’s drillships within its backlog increased to $414,000 per day from $338,000 per day over the past year.
Despite the slight decrease in hedge fund holders, dropping to 39 in Q2 2024 compared to 43 in the previous quarter, investor interest remains steady given the company’s solid fundamentals and attractive valuation. With stable oil prices and positive industry trends, Valaris is well-positioned for continued growth. The company’s potential to generate sustained free cash flow and its strong backlog growth further enhance its investment appeal. Valaris Limited (NYSE:VAL) focus on reactivating high-specification rigs, such as the DS-7, to secure lucrative contracts should support future earnings and cash flow growth, making it a standout option among mid-cap stocks with low P/E ratios.
Praetorian Capital stated the following regarding Valaris Limited (NYSE:VAL) in its Q2 2024 investor letter:
“Valaris Limited (NYSE:VAL) has been rangebound for over two years now, awaiting the signing of new contracts at current market rates, that will replace expiring contracts that are frequently less than half of current prevailing rates. There have been some questions as to why the company has been slow to sign new contracts. However, I believe that management is trying to trade a slightly reduced price for increased duration of contract tenure, and that’s the reason for a lack of commentary on new contracts. Should the company announce new contracts at anywhere near current market rates, I believe that the shares will respond in a rather dramatic way—especially as Valaris is by far the cheapest of the large drilling companies (based on the enterprise value per rig metric), despite having one of the best fleets and strongest balance sheets. Between our common and warrant position, Valaris was our 2nd largest position at the end of June.”
05. Gulfport Energy Corporation (NYSE:GPOR)
Forward P/E ratio as of October 2: 3.81
Number of Hedge Fund Holders: 33
Gulfport Energy Corporation (NYSE:GPOR) is a leading player in the acquisition, exploration, development, and production of natural gas, crude oil, and natural gas liquids across the United States. With core assets in the Utica and Marcellus formations in Ohio and the SCOOP Woodford and Springer formations in Oklahoma, the company is positioned to capitalize on its extensive high-quality asset base. As of October 2, Gulfport Energy boasts an attractive forward Price-to-Earnings (P/E) ratio of 3.81, making it a compelling addition to any list of mid-cap stocks with low P/E ratios. The stock’s inclusion is further supported by its strong financial performance and operational efficiency.
In the second quarter of 2024, Gulfport Energy Corporation (NYSE:GPOR) reported impressive financial results, generating $164 million in adjusted EBITDA and $20 million in adjusted free cash flow. The company’s production averaged 1.05 billion cubic feet equivalent per day, meeting expectations despite a challenging pricing environment. Gulfport also announced its intention to narrow its full-year production guidance to a range of 1.055 billion to 1.07 billion cubic feet equivalent per day, demonstrating confidence in its operational capabilities.
Gulfport Energy Corporation (NYSE:GPOR) strategic focus on cost optimization and efficiency improvements led to over $25 million in capital savings for its 2024 drilling and completion budget. The company’s operational team set new records, including an increase of 28% in daily frac pumping hours in the Utica region compared to 2023, highlighting the significant enhancements in drilling productivity and well completion. Additionally, Gulfport’s shift to a more liquids-rich development strategy has started yielding positive results, as evidenced by the successful completion of four gross condensate wells in Harrison County, Ohio.
Hedge fund sentiment around Gulfport Energy Corporation (NYSE:GPOR) has also shown a positive trend, with 33 hedge funds holding stakes in the company as of Q2 2024, up from 31 in the previous quarter. This reflects growing institutional confidence in the stock.
Gulfport Energy Corporation (NYSE:GPOR) robust balance sheet, disciplined capital allocation, and focus on shareholder returns position it well to navigate the current market dynamics. With a low forward P/E ratio and strong operational execution, Gulfport Energy Corporation (NYSE:GPOR) is an attractive investment for those seeking value in mid-cap stocks with solid fundamentals.
Greenlight Capital stated the following regarding Gulfport Energy Corporation (NYSE:GPOR) in its Q2 2024 investor letter:
“We exited a few positions during the quarter, including, Gulfport Energy Corporation (NYSE:GPOR): During our 4-year holding period, the company successfully reorganized and emerged from bankruptcy with a clean balance sheet. The company executed successfully and we exited with a 62% IRR.”
04. Jackson Financial Inc. (NYSE:JXN)
Forward P/E ratio as of October 2: 3.36
Number of Hedge Fund Holders: 31
Jackson Financial Inc. (NYSE:JXN) is a key player in the U.S. annuity market, offering a diverse range of retirement income and savings products through its subsidiaries. With a Forward P/E Ratio of just 3.36 as of October 2, 2024, Jackson Financial stands out as a compelling option in the mid-cap segment, making it an ideal candidate for our list of seven mid cap stocks with low PE ratios. As of Q2 2024, the stock had 31 hedge fund holders, compared to 27 in the previous quarter, indicating growing institutional interest.
The company operates through three segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks. During the second quarter of 2024, Jackson Financial Inc. (NYSE:JXN) delivered robust financial performance, driven by strong growth in annuity sales and effective capital management. Total retail annuity sales increased by 36% year-over-year and 15% sequentially, with notable contributions from variable annuities and Registered Index-Linked Annuities (RILAs). The company’s focus on enhancing its digital ecosystem has helped drive RILA sales momentum, reaching a record $1.4 billion in the second quarter. The strength in variable annuity sales, reaching $2.7 billion, further illustrates the company’s strong execution and appeal to retirement savers.
In Q2 2024, Jackson Financial Inc. (NYSE:JXN) reported adjusted operating earnings of $410 million, up 45% from the same period last year. This growth was fueled by higher fee income from increased annuity assets under management and improved earnings on spread products. The company’s robust capital position is underscored by an estimated RBC ratio of 550%-570%, well above its minimum target of 425%, supporting its long-term sustainability and commitment to shareholder returns. Jackson’s Board recently approved a $750 million increase in its share repurchase authorization, reflecting confidence in future profitability and cash flow generation.
The company’s prudent capital allocation strategy, solid earnings growth, and low valuation make it a compelling investment for those seeking exposure to mid-cap stocks with attractive fundamentals. The continued expansion of RILA sales and consistent shareholder returns further reinforce Jackson Financial Inc. (NYSE:JXN) position as a leader in the annuity market, offering strong growth potential for investors looking to capitalize on low P/E ratio opportunities.
03. Banco Macro S.A. (NYSE:BMA)
Forward P/E ratio as of October 2: 3.35
Number of Hedge Fund Holders: 13
Banco Macro S.A. (NYSE:BMA) is an Argentinian financial institution offering a comprehensive range of banking products and services to both retail and corporate clients. With a Forward Price-to-Earnings (P/E) Ratio of 3.35 as of October 2, the company stands out as an undervalued mid-cap stock, making it an attractive pick for value-oriented investors. Despite challenging macroeconomic conditions in Argentina, Banco Macro continues to maintain strong financial fundamentals.
In the second quarter of 2024, Banco Macro S.A. (NYSE:BMA) reported total net income of ARS233.2 billion, which was significantly impacted by a lower mark-to-market value of its government securities. However, if these securities had been valued at amortized cost, net income would have been approximately ARS300 billion higher, demonstrating the potential upside in the company’s financial performance.
The bank’s operating income before administrative and personnel expenses reached ARS2.38 trillion for the first half of 2024, representing a 36% increase from the same period in 2023. This growth was driven primarily by higher net operating income, which rose 41% year-over-year to ARS1.59 trillion. Additionally, the provision for loan losses in Q2 2024 fell by 26% compared to Q1 2024, reflecting improved credit quality and risk management practices.
Banco Macro S.A. (NYSE:BMA) net interest margin, including foreign exchange effects, stood at 19.9% in Q2 2024, highlighting its ability to generate consistent returns despite declining interest income. The company’s asset quality remains strong, with a non-performing loan ratio of 1.23% and a robust coverage ratio of 181.4%, which indicates that it is well-positioned to manage potential credit risks.
On the funding side, total deposits increased by 13% quarter-over-quarter to ARS6.74 trillion. The growth was primarily driven by a 23% increase in demand deposits, which underscores Banco Macro S.A. (NYSE:BMA) solid liquidity position. However, the number of hedge funds holding Banco Macro dropped to 13 as of Q2 2024, down from 18 in the previous quarter, reflecting a cautious stance by institutional investors amidst economic uncertainties.
Overall, Banco Macro S.A. (NYSE:BMA) low valuation and resilient performance amidst macroeconomic headwinds make it a compelling addition to the list of mid-cap stocks with low P/E ratios. The company’s strong fundamentals, solid asset quality, and potential earnings upside position it well for future growth.
02. Lincoln National Corporation (NYSE:LNC)
Forward P/E ratio as of October 2: 3.22
Number of Hedge Fund Holders: 37
Lincoln National Corporation (NYSE:LNC) is a diversified insurance and retirement company operating through its four primary segments: Life Insurance, Annuities, Group Protection, and Retirement Plan Services. The company’s competitive position in these areas, coupled with its disciplined capital management strategy, makes it a compelling pick among mid-cap stocks with low P/E ratios. As of October 2, Lincoln National Corporation (NYSE:LNC) has a forward P/E ratio of 3.22, making it an attractive option for value-focused investors. Furthermore, the stock saw an increase in hedge fund holders, rising to 37 in Q2 2024 from 32 in the previous quarter, indicating growing institutional interest.
During the second quarter of 2024, Lincoln National Corporation (NYSE:LNC) exceeded expectations by reporting an impressive EPS of $5.21, significantly higher than the anticipated $1.78. This strong performance was driven by robust growth in its Annuities and Group Protection segments. The Annuities business recorded its highest earnings quarter in two years, with total annuity sales reaching $3.8 billion, up 48% from the prior year. This growth was supported by a well-balanced product mix, with 70% of sales in spread and spread-like products. Additionally, fixed annuity sales more than doubled year-over-year, highlighting the effectiveness of the company’s strategy to capture market share in this segment.
Lincoln National Corporation (NYSE:LNC) Group Protection segment also showed strength, with earnings in line with the previous year’s record quarter and a margin of 8.2%. Sales growth was robust, increasing by 68% compared to the same quarter last year, driven by new business from existing customers and a focus on supplemental health products. This momentum reflects Lincoln’s successful execution of its strategy to diversify its product offerings and expand into new market segments.
The company also achieved an estimated RBC ratio of over 420%, bolstering its financial stability. This strong capital position, combined with Lincoln’s efforts to optimize its operating model and reduce expenses, positions it well for future growth and profitability. Overall, Lincoln National Corporation (NYSE:LNC) solid financial performance, strategic business realignment, and strong fundamentals justify its inclusion in the list of mid-cap stocks with low P/E ratios.
Miller Value Deep Value Strategy stated the following regarding Lincoln National Corporation (NYSE:LNC) in its first quarter 2024 investor letter:
“During the quarter, we initiated a position in Lincoln National Corporation (NYSE:LNC). Lincoln Financial is a 120-year-old financial services company that provides financial protection and security to its customers through annuities, life insurance, group protection and retirement plan services. Over the past two years, the company has seen significant headwinds in its Life Insurance segment and profit challenges across the business largely due to the Covid outbreak. New senior management has indicated a greater focus on strengthening the balance sheet, focusing on more capital-efficient new business, and improving long-term free cash flow generation. Over the past year, the company has conducted a series of transactions that have improved their balance sheet and enhanced the Firm’s capital ratios. Management is undertaking cost reduction actions and the headwinds in their life segment appear poised to turn to tailwinds over the next couple of years and potentially allow the segment to return to normalized profitability. In addition, the company’s new Head of Workplace Solutions whopreviously at MetLife is focused on improving the company’s Group and Retirement business, accelerating organic growth through new product offerings, and narrowing the segment margins with peers. If the company’s plans are executed well, Lincoln’s operating income could grow double digits over the next couple of years, improving company ROE (return on equity) and free cash flow conversion.
Lincoln is down 60%+ from its 2-year high, at an attractive 50% discount to book value and 30%+ normalized earnings yield. Achieving long-term free cash flow conversion targets would support annual free cash flow in excess of $1B. With a forward price-to-earnings (P/E) multiple close to four times, every one multiple point improvement generates approximately 25% in share price returns (significantly higher than the S&P 500 today which would be closer to 5% for each multiple point improvement and for the top five market caps, closer to 3%). Over the next 3-5 years, LNC returning to normalized earnings and valuation expanding back towards the peer group 20-year P/E average of 9.6x and 1.2x book value, would support upside potential near three times its current price levels.”
01. APA Corporation (NASDAQ:APA)
Forward P/E ratio as of October 2: 2.81
Number of Hedge Fund Holders: 31
APA Corporation (NASDAQ:APA) is a prominent independent energy company, specializing in the exploration, development, and production of natural gas, crude oil, and natural gas liquids. With operations spanning the United States, Egypt, and the North Sea, APA Corporation (NASDAQ:APA) also has exploration projects in Suriname and Uruguay. As of October 2, APA Corporation (NASDAQ:APA) stock features an attractive Forward P/E ratio of 2.81, making it a solid inclusion in the list of mid-cap stocks with low P/E ratios. The company’s strong fundamentals, coupled with its solid global presence, make it an appealing investment option.
For Q2 2024, APA Corporation (NASDAQ:APA) reported consolidated net income of $541 million, or $1.46 per diluted share, under Generally Accepted Accounting Principles (GAAP). Excluding non-core items, such as a $216 million after-tax gain on divestitures and $98 million in transaction costs related to the recent Callon Petroleum acquisition, APA Corporation (NASDAQ:APA) adjusted net income stood at $434 million, or $1.17 per share. The company also generated $200 million in free cash flow during the first half of 2024, demonstrating its strong financial health and operational efficiency.
The integration of Callon Petroleum has proven successful, with APA Corporation (NASDAQ:APA) increasing its estimate of annual cost synergies from $225 million to $250 million. These synergies are being realized through reduced overhead, improved cost of capital, and enhanced operational efficiencies. The combined company is expected to benefit significantly from cost reductions and enhanced capital efficiency in its Permian Basin operations, potentially adding $300 million in annual cash flow for every $5 change in oil price per barrel.
In terms of production, APA Corporation (NASDAQ:APA) exceeded expectations in all three of its main operational areas. U.S. oil production rose 67% compared to the first quarter, primarily due to the integration of Callon assets. Furthermore, the company anticipates strong organic production growth in the second half of the year, projecting a fourth-quarter U.S. oil output of 150,000 barrels per day, which reflects an 8% increase over the second quarter.
The number of hedge funds holding APA Corporation (NASDAQ:APA) shares declined to 31 in Q2 2024, down from 45 in the previous quarter, suggesting potential undervaluation. Given the stock’s low forward P/E ratio, strong cash flow generation, and successful acquisition integration, APA Corporation presents an enticing opportunity for investors looking for a mid-cap energy stock with robust fundamentals.
While we acknowledge the potential of APA to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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