The S&P 500's strong first half, with gains exceeding 15%, has pushed its valuation even higher. The average P/E ratio based on current year expected earnings now sits at 22.7, while the median is nearly five points lower at 17.8. This gap highlights the concentration of high valuations among the largest companies in the index.

In looking through the individual stocks in the S&P 500, four stocks have a lower earnings multiple (based on estimated earnings for the current year) than the 4.9 percentage point gap between the average and median multiple of the index’s components. Below we highlight charts of each of them and show that in certain cases, cheap doesn’t necessarily mean good value.

Of the five “cheapest” stocks in the S&P 500, General Motors (GM) has been the best performer over the last year with a gain of 22.5% on a total return basis. Even after the gain, the stock trades at 4.86 times estimated earnings. For the current year, analysts expect GM to grow earnings by 24%, but in the two years after that, earnings are only expected to grow by a little more than 1% which is also the stock's dividend yield.

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Next on the list in terms of performance is Viatris (VTRS). VTRS was formed in 2020 following the merger of Mylan and Upjohn, which was a division of Pfizer (PFE). The company owns several brand-name prescriptions, generics, biosimilars, and OTC treatments. VTRS isn't a high-growth stock (earnings are expected to decline 7% this year), but with a P/E of 3.92 and a yield of 4.49%, shareholders are more attracted to the stock because of its income characteristics. With an annual dividend payout of 48 cents and annual earnings of over $2.00 per share, as long as earnings don’t collapse, VTRS should have no problems with maintaining its payout.

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While VTRS and GM have been winners, the other two ‘cheap’ stocks have only gotten cheaper over the last year. The first is United (UAL). Air travel has more than erased all of the weakness from Covid, and the TSA is expected to see record passenger volumes around this July 4th holiday. Despite the strong demand, airline stocks have generally struggled in recent months. Over the last year, UAL is down 13.85% taking its P/E down to 4.8. After tripling last year, earnings are expected to grow just 1% in 2024 but then bounce back to between 10% and 20% for each of the next two years.

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Last and certainly least is Walgreens Boots Alliance (WBA) which has declined more than 55% over the last year. At the surface, the stock looks cheap trading at just 4.1 times expected earnings and yielding 8.1%. After this week’s horrific earnings report, those estimates are likely to come down sharply. The company reported weaker-than-expected earnings and lowered guidance for the full year. It added that it plans to close a ‘significant number’ of stores due to declining margins and weak profitability. In later comments, the CEO noted that up to a quarter of all stores could be affected. In response to the report, the stock crashed more than 22% on Thursday and fell every day this week. And that 8% dividend yield? While there was no mention of it on the call, WBA already cut its payout by nearly half earlier this year, and after this week's report, another cut can't be ruled out.

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