A cheap P / E ratio with a high return could ideally be good basic requirements for an investment. Of course, you should never lose sight of the business model apart from the valuation figures. In the end, this is much more important than the pure evaluation.
Still, investing in cheap stocks is sometimes smarter than expensive ones. If you buy cheap, you end up with a higher return.
Two shares it currently shine with a low P / E ratio and a high yield bmw (WKN: 519000) and Vonovia (WKN: A1ML7J). Let’s take a look at these two stocks from Germany.
Shares with low P / E ratios and high dividends
The BMW stock has long traded at expected single-digit price earnings. It currently stands at 4 with a yield of 7.4% (as of 19/5/22, Reuters).
However, there are reasons for the lower valuation: On the one hand, the premium car manufacturer is a cyclical stock. If the car industry has a good year, manufacturers report high profits. If the economy weakens, there are supply chain problems, shortages of chips, or if inflation takes the money from customers to buy a car, car manufacturers notice this quite quickly in their deliveries.
On the other hand, the business is changing. The electric car must replace the internal combustion engine – and as soon as possible.
This, in turn, is an expensive business whose success is not yet guaranteed. After all, the company is in a market here with new challengers like Tesla, Rivian or Nio. These are not only characterized by their fully electric fleet, but also impress with their technically upgraded vehicles.
The German housing company Vonovia is not quite as cheap as BMW’s share with a forward-to-earnings ratio of 13.3 and a dividend of 4.9%. On the other hand, the Vonovia share impresses with its planned rental income and hard asset values.
Almost three and a half billion euros in revenue came from letting real estate in the financial year 2021 – and the trend is increasing. The market value of real estate assets at the end of the first quarter: EUR 96 billion.
At the end of 2021, the acquisition of Deutsche Wohnen succeeded in the second attempt. The company now finally has access to attractive real estate in the Berlin area. The takeover is not entirely without risks, because Berlin is characterized by a harsh implementation of rent control.
However, the biggest risk for the Vonovia share may lie in rising interest rates, which should tend to lead to a low valuation of real estate.
Hard assets (tangible net assets) were most recently listed at EUR 63.55 per share. share (Q1 / 2022). However, the share price is currently significantly lower. The share is thus traded under its own property portfolio. Each investor must decide for themselves whether this ultimately represents an opportunity or rather a risk.
Article Cheap P / E, High Yield: These Stocks Deliver! first appeared on The Motley Fool Germany.
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Frank Seehawer owns shares in BMW. The Motley Fool recommends BMW.
Broget Fool Germany 2022