Caterpillar Inc. (CAT), JPMorgan Chase & Co. (JPM): How To Find Value?

Exxon Mobil Corporation (NYSE:XOM) stock has only edged up since early March. Chevron Corporation (NYSE:CVX) shares have performed a touch better. Currently, ExxonMobil and Chevron both have P/E ratios of 9.3, in an industry where the average is 16.8. But this does not necessarily mean that they are both screaming buys. Looking down the road, analysts have cut their expected earnings growth rate for next year. This is important for investors to keep in mind when examining valuation metrics based on future performance. Taking into consideration analyst expectations, we find that Chevron has a PEG ratio of 4.1, while ExxonMobil is even higher at 5.1. Thus, neither oil company might be the bargain first thought by looking only at the P/E ratio, and the potential for further share-price gains in the near term might be constrained.

UnitedHealth Group Inc. (NYSE:UNH) shares took off in late March, but have, net, lost a little ground since then. Still, the stock is higher since the earlier article, and it currently has a P/E of 11.8 against an industry norm of 20.3. When I last discussed UnitedHealth, it had a PEG ratio of 0.8. Based on current analyst estimates for future earnings, UnitedHealth has a PEG ratio of 1.01, which is still low enough to appeal to value investors.

This brings us to the one change in the list. Microsoft Corporation (NASDAQ:MSFT) shares had been trending relatively flat until mid-April, but then went on a tear. The rally pushed the valuation higher, and the stock is no longer the bargain it was in early March. The stock that appears to be more cheaply valued is JPMorgan Chase & Co. (NYSE:JPM). Shares have slipped since early March. This decline gives JPMorgan stock a P/E of 8.8 versus an industry average of 14.5. Based on expected future performance, JPMorgan has a PEG ratio of 1.23, which is still low enough to appeal to many investors. Yet, one needs to recognize other dynamics that are affecting JPMorgan Chase & Co. (NYSE:JPM), as well as some of the other big banks. Fool Kyle Colona recently highlighted some of the legal and regulatory issues affecting these key players.  Some investors may find current valuations appealing. More conservative types may prefer to wait for better clarity on some of these other issues.

In sum

The Dow has been on a tear. Although a handful of Dow members appear to still be cheaply priced on the basis of key metrics, such as P/E, closer inspection suggests that first impressions may be somewhat misleading. Given the lofty PEG ratios, further gains in Chevron and ExxonMobil may be muted. Value investors may want to take a closer look at UnitedHealth and, cautiously, Caterpillar Inc. (NYSE:CAT) and JPMorgan Chase & Co. (NYSE:JPM).

The article Re-examining Value in the Dow originally appeared on Fool.com and is written by Erik Dellith.

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