Stocks Look Cheap. But Are They Good Buys?

Price-to-earnings ratios have fallen sharply. Here’s where to find bargains.

- Sergei Klebnikov

IT’S BEEN A ROCKY FEW MONTHS for the stock market. That may mean a buying opportunity.

Near record highs in October, the market plunged into almost bear market territory at the end of 2018. Though stocks have bounced back somewhat, they remain almost 8% below their 2018 highs. The upshot is that the market now looks the cheapest it’s been in years.

As of February, stocks in the Standard & Poor’s 500 index traded at prices that were, on average, equal to about 18 times the profits those companies had earned in the previous 12 months, according to data compiled by Bloomberg. That’s lower than at any point since February 2016. Indeed, the S&P 500 has been at its cheapest levels relative to forwarding earnings for even longer—since 2013.

Of course, there’s a catch. Stocks have gotten less expensive because investors are increasingly worried about obstacles like the U.S. trade war with China, as well as slowing earnings growth. MONEY spoke with several veteran investors to see whether stocks are a good buy right now.

LEWIS ALTFEST

Chief Executive Officer

ALTFEST PERSONAL WEALTH MANAGEMENT

While stocks were expensive before the 2017 Tax Cuts and Jobs Act, now the market looks more fairly priced, Altfest says. The tax cuts enabled U.S. companies to increase their profit margins in 2018. For 2019, however, the effect of lower taxes is already baked in. With companies also facing rising labor costs, profit margins may have peaked.