10 Undervalued, Unloved S&P 500 Stocks

BOSTON (TheStreet) -- With QE2 likely to buoy the stock market through year-end, investors should seek undervalued stocks. Here are 10 of the cheapest S&P 500 stocks based on forward earnings multiples. Below, they are ordered from cheap to cheapest.

10. SLM Corp. ( SLM) provides education finance.

SLM swung to a third-quarter loss of $495 million, or $1.07 a share, as revenue gained 6.1% to $1.7 billion. The operating margin narrowed from 61% to 60%. SLM's stock trades at a forward earnings multiple of 8.1, a book value multiple of 1.3 and a sales multiple of 0.9, 41%, 45% and 41% discounts to consumer finance industry averages. Of analysts covering SLM, seven advise purchasing its shares and three recommend holding them. None suggest selling. A median target of $16 implies 27% upside.

Bullish Scenario: FBR Capital Markets predicts that SLM's stock will advance 52% to $19.

9. Allstate ( ALL) is a property and casualty insurer.

Its third-quarter profit soared 66% to $367 million, or 68 cents a share, as revenue ascended 4.9% to $7.9 billion. The operating margin widened from 4.4% to 7.5%. Allstate has $6.7 billion of cash and $5.9 billion of debt, converting to a debt-to-equity ratio of 0.3. Its stock sells for a forward earnings multiple of 8, a book value multiple of 0.9, a sales multiple of 0.5 and a cash flow multiple of 4.4, 28%, 79%, 89% and 74% discounts to peer averages. Roughly 58% of researchers covering Allstate rate it "buy."

Bullish Scenario: Stifel Financial forecasts that Allstate's stock will gain 47% to $45.

8. Cigna ( CI) is a managed-health-care company.

Its third-quarter profit decreased 6.7% to $307 million, or $1.13 a share, as revenue climbed 17% to $5.3 billion. The operating margin contracted from 12% to 9.7%. Cigna has $2.4 billion of cash and $1.8 billion of debt. Its stock trades at a trailing earnings multiple of 8.4, a forward earnings multiple of 7.9, a book value multiple of 1.5 and a cash flow multiple of 5.7, 47%, 44%, 47% and 48% discounts to industry averages. Of researchers following Cigna, six rate its stock "buy", 12 rate it "hold" and one ranks it "sell."

Bullish Scenario: JPMorgan values Cigna's stock at $46, implying a 12-month return of 25%.

7. Ford ( F) is the second-largest U.S. carmaker.

Third-quarter net income surged 69% to $1.7 billion, but earnings per share advanced 48%. Revenue declined 1.3% to $30 billion. The operating margin expanded from 7.7% to 10%. Ford's stock sells for a trailing earnings multiple of 9.2 and a forward earnings multiple of 7.8, 44% and 63% discounts to peer averages. It's fairly valued based on cash flow. Of analysts covering Ford, 12 advise purchasing its shares, four recommend holding and one says to sell. A median target of $18.23 implies 14% upside.

Bullish Scenario: Deutsche Bank expects Ford's stock to appreciate 28% to $20.50.

6. Forest Laboratories ( FRX) develops and sells branded and generic pharmaceuticals.

Its fiscal second-quarter profit surged 53% to $286 million, or $1 a share, helped by a product license fee. Revenue ascended 6.5% to $1.1 billion. The operating margin extended from 32% to 34%. Forest's stock trades at a forward earnings multiple of 7.8 and a sales multiple of 2.2, 41% and 25% discounts to pharmaceutical industry averages. Of analysts covering Forest, 11 rate its stock "buy", 16 rate it "hold" and four rank it "sell." A median target of $35.10 suggests 6% of upside.

Bullish Scenario: Jefferies forecasts that Forest's stock will climb 18% to $39.

5. Cliffs Natural Resources ( CLF) is a mining company, producing iron ore pellets and coal.

Cliffs Natural Resources' third-quarter profit quintupled to $297 million, or $1.28 a share, as revenue doubled to $1.3 billion. The operating margin extended from 11% to 30%. Cliffs has $969 million of cash and $1.9 billion of debt. Its stock sells for a trailing earnings multiple of 13, a forward earnings multiple of 7.7, a book value multiple of 2.8 and a cash flow multiple of 12, 52%, 58%, 26% and 53% discounts to peer averages. Three quarters of analysts following the stock rate it "buy."

Bullish Scenario: Deutsche Bank values the stock at $95, suggesting a 12-month return of 36%.

4. Unum ( UNM) is a life and health insurer.

Its third-quarter net income remained constant at $221 million, but earnings per share inched up 3% to 68 cents, helped by a smaller float. Revenue was unchanged. The operating margin hovered above 14%. Unum has $1.9 billion of cash and $2.9 billion of debt. Its stock trades at a forward earnings multiple of 7.6, a book value multiple of 0.8 and a cash flow multiple of 5.6, 32%, 81% and 67% discounts to industry averages. Six analysts rate the stock "buy", 10 rate it "hold" and one ranks it "sell."

Bullish Scenario: Deutsche Bank forecasts that Unum's stock will appreciate 41% to $31.

3. GameStop ( GME) sells video games.

Fiscal second-quarter net income rose 4.3% to $40 million and earnings per share jumped 13% to 26 cents, boosted by a lower share count. The operating margin fell from 4.1% to 3.9%. GameStop has $289 million of cash and $448 million of debt. Its stock sells for a forward earnings multiple of 7.4, a book value multiple of 1.2 and a cash flow multiple of 5.5, 55%, 61% and 57% discounts to specialty retail industry averages. Of researchers following GameStop, 12 rate its stock "buy" and six rate it "hold."

Bullish Scenario: BB&T predicts that GameStop's stock will climb 57% to $32.

2. Hartford Financial Services ( HIG) offers insurance and financial services.

The company swung to a third-quarter profit of $666 million, or $1.34 a share, from a year-earlier loss. Revenue grew 26% to $6.6 billion. The operating margin turned positive. Hartford has $46 billion of cash and $7 billion of debt. Its stock trades at a forward earnings multiple of 7.2, a book value multiple of 0.6 and a cash flow multiple of 4.6, 35%, 86% and 72% discounts to insurance peer averages. Of analysts covering the stock, seven advise purchasing and 11 suggest holding the shares.

Bullish Scenario: UBS expects Hartford's stock to advance 62% to $42.

1. SuperValu ( SVU) operates retail food stores.

It swung to a fiscal second-quarter loss of $1.5 billion, or $6.94 a share, from a year-earlier profit, hurt by a one-time impairment charge. Revenue fell 8.3%. The operating margin contracted from 2.7% to 2.5%. SuperValu has $203 million of cash and $7.1 billion of debt, converting to a debt-to-equity ratio of 4.9. Its stock sells for a forward earnings multiple of 6.9, a book value multiple of 1.6 and a cash flow multiple of 1.6, 53%, 42% and 81% discounts to industry averages. No analysts rank the stock "buy."

Bullish Scenario: Citigroup, rating SuperValu "hold", values it at $15, implying it is 43% below fair value.

-- Written by Jake Lynch in Boston.

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