U.S. stocks are on track to close lower for the third straight month. It would be the first time this has happened since the pandemic plunge of early 2020. 

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With no end in sight to the Russian attack on Ukraine, equity markets in other parts of the world are also on edge. The energy sector aside, stock prices continue to slide amid high geopolitical uncertainty and exploding commodity prices.

This means that price-to-earnings, or P/E, ratios have also come down for most companies. Around 22x prior to the start of the Russia-Ukraine crisis, the forward P/E on the S&P 500 has dropped to 19x, the first sub-20x reading since the early Covid days.

It is a risky market to be buying into, but the reality is domestic stocks haven’t flashed such valuations in a long time. High multiple names could remain targets for further compression leaving stocks with low P/E’s relatively unscathed. 

It is within the low P/E group that investors will find some companies with limited downside and bargain valuations. These three stocks have P/E ratios under 10 and favorable risk-reward profiles.

What is a Good Steel Stock? 

Reliance Steel & Aluminum Co. (NYSE: RS) is trading at 8x this year’s earnings estimate. The metals producer climbed to a record $194.91 last week on soaring prices for carbon and stainless steel, which together account for approximately three-fourths of revenue. The $15 pullback since has presented a more ideal entry point for a stock that should continue to trend higher in a year already dominated by rising commodities.

As North America’s largest metals services center, Reliance provides more than 100,000 metal products along with processing services to a wide range of customers. Its biggest market, the commercial construction industry, is experiencing increased bidding activity and expected to be a strong source of demand. Customers in the auto, aerospace, and energy markets are also showing solid demand with these industries well into recovery mode.

Reliance’s diverse customer base combined with higher pricing drove a 60% jump in sales last year. And with steel rebar prices already up 12% year-to-date and U.S. infrastructure projects progressing, things are looking up for 2022. The (steel) bar will be set high after a stellar 2021 performance, but the current valuation makes Reliance a steal. 

Is Builders FirstSource Stock a Buy?

Builders FirstSource, Inc. (NYSE: BLDR) is an undervalued construction play of a different sort. It too has come down from a recent record high to the tune of 20%. At less than 8x forward earnings, the country’s leading building materials supplier may be the cheapest way to invest in the U.S. homebuilding and remodeling boom.

With over 550 locations across 39 states, Builders FirstSource is a one-stop shop for homebuilders, sub-contractors, and do-it-yourselfers. Its offerings run the residential construction gamut from floors to roofs to walls to windows. 

Among the biggest trends to come out of the pandemic is increased interest in home remodeling and renovations. A seller’s market and near record low mortgage rates are incentivizing other homeowners to build. These trends have been a powerful two-pronged demand engine for Builders FirstSource’s products and services. 

The company is coming off a banner year in which sales rose 56% to a record $19.9 billion. Expectations for a healthy housing market in 2022 has management predicting another strong year. 

Although Builders FirstSource won’t continue to produce the type of growth it did in 2021, projections for 10% annual sales growth through 2025 would keep the business humming along well above anticipated U.S. GDP growth. A healthy housing market, solid balance sheet, and focus on digital innovation make this a company worth building into a long-term growth portfolio. 

Is Whirlpool Stock Undervalued?

Few manufacturers have been challenged by the current economic headwinds as much as Whirlpool Corp. (NYSE: WHR). The home appliances maker continues to face the one-two punch of supply chain disruptions and rising raw material costs. While things like higher freight and steel costs have weighed on margins, the good news is that underlying sales trends are positive.

After recording a 13% jump in revenue last year, consumer demand for washers, dryers, refrigerators, and other household appliances is expected to grow in 2022. And with roughly half of sales generated outside the U.S., Whirlpool has good regional diversification to go along with its diversified brand lineup, which includes KitchenAid, Maytag, and Consul. 

Despite the overhang of supply chain woes and cost inflation, Whirlpool has been able to top consensus earnings estimates for 14 consecutive quarters. This speaks to management’s ability to manage costs and effectively implement price increases to capitalize on a healthy demand backdrop.

With logistics nightmares expected to ease as the year progresses, management struck a rather dreamy tone in its 2022 outlook. Although high steel prices are expected to dent profitability by at least $1 billion, the company expects price hikes and a more favorable product mix to drive a 6% increase in the operating margin. 

EPS are forecast to be $27 to $29. At the midpoint, this implies a forward P/E of just 7x. At this valuation, investors should buy, rinse, and repeat.

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