S&P 500’s Hidden Opportunities

Over the past two weeks, I have looked at the overvalued and undervalued stocks in the Dow Jones Industrial Average.

To summarize, I chose 10 stocks from the Dow Jones Industrial Average in 2021 based on whether they were undervalued or overvalued according to the consensus analyst target price.

Read This Story: Revisiting the Dow’s Undervalued and Overvalued Stocks

Two and a half years later, the undervalued list was 22.4% higher and the overvalued list was 8.3% lower. Over that same time period, the Dow rose by 7% and the S&P 500 was up 9%.

Extending the Analysis: S&P 500 Under the Spotlight

Last week I updated this analysis for the Dow. This week, I want to do the same analysis for the S&P 500.

I dumped all S&P 500 components, which you can find here, into a spreadsheet I use for analyzing companies. One of the cells in that spreadsheet contains the consensus analyst target prices from the data provider FactSet. This is one of several metrics I use for stock-picking.

I compared the target price to the most recent closing price to come up with the “upside”, which was simply the percentage gain that would be required to reach that target. I then listed the 10 most undervalued and overvalued companies in the S&P 500 according to these consensus estimates.

Identifying Undervalued Stocks

Using that metric, here are the 10 most undervalued companies in the S&P 500 as of 9/16/23 according to these consensus estimates.

These time horizon for these targets is usually 1-3 years. The average upside for this undervalued list is 60.6%.

Top 10 Overvalued S&P 500 Companies

Using the same analysis, here are the 10 most overvalued S&P 500 components.

Intel (NSDQ: INTC) was the most overvalued Dow component and is in the Top 10 overvalued S&P 500 components. There are several other household names on the list.

On average, this list is 3.7% overvalued. Every one of the overvalued companies are above their target price.

Analyst Insights: A Piece of the Puzzle

Let me offer the caveat that sometimes analyst estimates are wrong. If they weren’t, investing would be a piece of cake. We could just invest according to consensus targets and outperform the market.

Nevertheless, they do offer some insight into Wall Street’s thinking. Further, these will be the companies that brokers are recommending to clients. This can provide some uplift and some downside resistance. In other words, it’s not the only consideration in picking a stock, but it’s a good piece of information. An undervalued stock, heading into an economic recovery, could be your chance to catch lightning in a bottle.

As I did previously, I will plan to review these picks in a year or two.

Editor’s Note: Robert Rapier just provided you with invaluable investing advice, but we’ve only scratched the surface of his expertise.

In up or down markets, Robert makes money for his followers. As chief investment strategist of Income Forecaster, Robert’s unconventional investment methods could hand you the retirement of your dreams. His time-proven advice provides an investment trifecta: income, growth and safety. Click here for details.

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