Identifying stocks with ideal P/E ratios that offer consistency and stability can be important. On the one hand, underperforming or overvalued stocks may be cheap for a good reason. On the other hand, stocks that have been rising rapidly could be due for a correction.
Some stocks see wide fluctuations in their (price-to-earnings) P/E ratio, which could indicate that investors are reacting emotionally to that asset. For some traders, that type of movement may present opportunities, but for others, it signifies increased risk due to less predictable price behavior. A prudent strategy is to focus on stocks with P/E ratios that avoid the extremes and demonstrate stability.
Stocks with ideal P/E ratios offer promise. Of course, reasonable valuation metrics may vary depending on investment style. However, some companies are neither overvalued nor undervalued, trading at fair value. In an uptrending market, a balanced approach concentrating on stocks with ideal P/E ratios could help generate consistent gains with less stress versus trying to identify extreme movers.
Typically, stocks have an approximate P/E ratio of 20x, though the ratio depends on the industry. More important than the specific numeric ratio is the company’s financial performance. For a stock maintaining a stable P/E, rising earnings that track the stock price indicate the company is executing well operationally. After all, the P/E ratio is the division of the company’s stock price by its earnings. Solid fundamentals suggest the ability to continue delivering share price appreciation and dividend growth in line with profits.
Here are some stocks with ideal P/E ratios suitable for investors seeking stability and consistency:
Apple (AAPL)
It should be no surprise that one of Warren Buffett’s preferred valued stocks would make the cut. Apple (NASDAQ:AAPL) is one of the stocks with ideal P/E ratios that generate consecutive solid growth over time. It is currently trading at a P/E ratio of 26.3x, which is actually below the S&P 500 index.
While this may be slightly higher than the long-term average P/E ratio of 20x for most stocks, Apple has the advantage of being a well-established brand. More importantly, Apple has consistently grown its earnings for over a decade, and its brand retains investors’ confidence. This could help keep its share price aligned with earnings going forward, maintaining an ideal P/E ratio.
Coca-Cola (KO)
Coca-Cola (NYSE:KO) is another one of the stocks with ideal P/E ratios. As a leading beverage company, Coca-Cola tends to experience stable growth as demand for its products remains consistent through different economic conditions.
While share price increases may be modest for KO, the company offers investors a relatively high dividend yield of 3.3%. Notably, The stock currently trades at a P/E ratio near the optimal stock average of 24x, making it one of the stocks with ideal P/E ratios. Analysis shows Coca-Cola’s P/E ratio has been consistently at or above this level since 2018. That year, earnings were impacted by a one-time tax impact of changes under the Trump administration.
JPMorgan Chase (JPM)
JPMorgan Chase (NYSE:JPM) is the final pick of stocks with ideal P/E ratios. It has built significant reserves in anticipation of a potential economic downturn predicted by its CEO last year. With the U.S. economy now appearing poised for a soft landing, the largest bank in the country has ample resources to reward shareholders through dividends and support its stock price.
Based on its upcoming quarterly earnings report, the company is also well-positioned to benefit from interest rate conditions. At a P/E ratio of 12.1x, JPM trades in line with the average for the U.S. banking sector of 11.8x. It represents one of the stocks with ideal P/E ratios, given its relatively consistent earnings growth over the past decade when profits have tripled. This could provide long-term holders stability through consistent growth.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.