Dividend Stocks Selling at a 33% Discount

The S&P index of large American companies recently traded at 14 times forecast 2011 earnings. That suggests that, even though the index has quickly doubled since hitting its recessionary low point in March 2009, shares seem priced in line with historic averages. There's one hitch, however. After-tax corporate profits are astonishingly high right now relative to the size of the economy. That's not to say a plunge is imminent, but history suggests corporate profits will revert to or below average levels.

What would happen if profits reverted to their historic share of the economy now? For one thing, the price-to-earnings ratio for the S&P 500 would inflate to a worrisome 20. Shop carefully, stock investors. Below are listed three companies that are one-third cheaper than the index based on earnings and that pay decent dividends. 1.) Pfizer (PFE: 20.98, 0.06, 0.29%) shares have gained 20% since the company announced in January 2009 that it would buy rival Wyeth for $68 billion. 2.) Tyson Foods (TSN: 18.51, -0.02, -0.11%) on Monday reported earnings that slightly missed Wall Street estimates, snapping a two-year string of upside surprises and 3.) Whirlpool (WHR: 85.10, -1.56, -1.80%) has quietly quadrupled in price since March 2009.

Source: SmartMoney

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