- Inexpensive stock markets beat their most expensive stocks in 2022.
- But commodities as a whole are set to struggle this year, according to Credit Suisse.
- Here are 39 stocks and beauty deals that should record strong earnings this year.
Cheap stocks outperformed their value peers by 15.9% last year, their best annual comparison since 2001, according to Credit Suisse.
Companies that were cheap on a price-to-earnings (P/E) basis had the highest P/E ratios in all 11 market segments by 2022 – something that hasn’t happened since from 1995, the company received. Low-value stocks have also outperformed high-value stocks in terms of growth and value.
But cheap stocks don’t seem like a bargain right now for three main reasons, wrote Patrick Palfrey, co-head of quantitative research at Credit Suisse, in a January 19 letter.
First, the spread between the low P/E and the high P/E has narrowed significantly as the cheap stocks have gotten less valuable while the richer companies have seen their earnings. found to be greatly reduced from the height of the sky, said Palfrey.
“Low P/E companies no longer seem inferior compared to more expensive names,” Palfrey wrote in the letter.
Perhaps more worrisome, cheap stocks are expected to have weaker-than-normal earnings this year compared to top-tier companies. Investors have accepted lower earnings as a trade-off for getting stocks at a discount, but Palfrey warned that the earnings growth outlook for those names is “more depressed than usual.”
The expected increase in income between low-cost and high-cost stocks is quite surprising. Credit Suisse predicts that high P/E stocks will grow earnings by 15.5% in 2023 while their low P/E peers will only 3% growth. Over the past 10 years, wealthy companies have seen an average of 14.4% revenue growth compared to an average of 8.2% revenue growth for discounters.
Finally, interest rates are expected to rise at a much slower rate this year compared to 2022. This is a tailwind for high P/E stocks that may affect the performance of low name P/E, written by Palfrey. Investors are not willing to pay for higher prices when prices rise.
39 cheap stocks to buy for growing income
However, not all cheap products will struggle this year.
In his report, Palfrey listed 39 stocks with low P/E ratios that are also positioned for strong revenue growth based on their brand and segment in 2023. Below are cheap stocks that are determined by Credit Suisse along with the brand, market capitalization, and sector for each.