Simply looking at earnings numbers and multiples can be misleading if you’re looking at stocks to buy.
That’s because a company can have an unusually strong or weak quarter that impacts its multiples, and in the process, it can end up looking much cheaper or more expensive than it otherwise would be
It’s one of the dangers of relying solely on multiples when scanning and searching for stocks. A couple of stocks that are much cheaper than they might initially look are AbbVie (NYSE: ABBV) and CVS Health (NYSE: CVS). While at first glance these stocks may appear to be expensive and trading at high earnings multiples, a closer look reveals that they can actually end up being bargain buys.
AbbVie Healthcare giant AbbVie trades at a seemingly expensive price-to-earnings (P/E) multiple of more than 100. Thus, it may not be all that surprising to see that the stock has risen by just 14% over the past 12 months, as investors may have avoided the stock due to that high multiple. By comparison, the S&P 500 has risen by about 24% during that stretch.