9 low P/E & high ROIC stocks for 2025
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Combining low Price-to-Earnings (P/E) ratios with high Return on Invested Capital (ROIC) creates a powerful screening methodology for investors seeking quality businesses at reasonable valuations. This approach merges value investing principles with quality metrics to identify potentially undervalued companies demonstrating capital efficiency.
Understanding the ROIC-P/E Connection
ROIC serves as a critical financial ratio measuring how effectively companies deploy capital to generate profits. By examining a company's ability to create value from its invested capital, investors can distinguish between businesses with sustainable competitive advantages and those merely benefiting from temporary market conditions.
When paired with a low P/E ratio, high ROIC stocks potentially represent:
- Undervalued quality businesses
- Companies with pricing power and economic moats
- Efficient capital allocators trading at reasonable valuations
Screening Criteria Methodology
Our quantitative framework applies two primary filters to isolate exceptional capital allocators trading at compelling valuations:
- LTM P/E <= 10: Trailing twelve-month price-to-earnings ratio not exceeding 10x, positioning these securities among the market's most attractively valued earnings streams
- ROIC >= 20%: Return on Invested Capital meeting or exceeding the 20% threshold, indicating superior operational efficiency and capital deployment capabilities
9 low P/E & high ROIC stocks:
Rio Tinto Group (RIO)
Rio Tinto shows strong operational and financial performance for 2024, with a healthy rise in annual profit. The company reported underlying EBITDA of $23.3 billion and operating cash flow of $15.6 billion. Looking ahead to 2025, Rio Tinto maintains its Pilbara iron ore shipment guidance at 323 to 338 million tonnes. The company plans to increase capital expenditure to $11 billion in 2025, up from previous forecasts, with a focus on growth investments. While facing some market volatility, Rio Tinto's strong balance sheet and consistent dividend policy (60% payout ratio) make it an attractive option for investors seeking stable returns. However, uncertainties remain regarding global economic conditions and the impact of potential tariffs on commodity demand.
Altria Group, Inc. (MO)
Sentiment is neutral with a slight bullish bias. The stock is trading above its 50-day and 200-day moving averages, indicating positive momentum. However, there are concerns about potential overvaluation, with a price prediction suggesting a 9.43% drop by April 2025.
BHP Group Limited (BHP)
Professional market sentiment for BHP is very positive, with an Obermatt Sentiment Rank of 76. Analysts and professional investors show favorable opinions, and market pulse is strong. However, the overall recommendation is to hold based on valuation concerns.
Diageo plc (DEO)
Current sentiment is bearish, with the stock trading below its 50-day and 200-day moving averages. However, there's a positive price prediction of 4.75% growth by April 2025, suggesting potential undervaluation.
JD.com, Inc. (JD)
JD's sentiment is neutral, but there are concerns about overvaluation. The stock has shown growth over the past year. The current RSI of 70.67 indicates overbought conditions.
Lennar Corporation (LEN)
Despite strong Q1 2025 earnings beating forecasts, the stock experienced a 4.16% decline post-earnings. Concerns about broader market conditions, including higher mortgage rates and affordability issues, seem to outweigh positive financial results.
Halliburton Company (HAL)
Halliburton's ROIC of 22% significantly exceeds its WACC of 9.07%, indicating strong value creation. The company's P/E ratio of 9.05 suggests it may be undervalued compared to its earnings potential. Analysts maintain a "Buy" consensus with an average target price of $34.19, implying a 36.74% upside from the last close price of $25.00.
PulteGroup, Inc. (PHM)
Sentiment: Very positive. PulteGroup's ROIC of 25.2% is substantially higher than its WACC of 11.43%, demonstrating excellent capital efficiency and value creation for shareholders. This strong performance suggests the company is effectively managing its resources and generating significant returns on its investments.
Illumina, Inc. (ILMN)
Illumina's sentiment is mixed with a cautious outlook. The company expects low single-digit constant currency revenue growth for 2025, projecting revenue between $4.28 billion and $4.4 billion. This modest growth forecast reflects ongoing challenges in the macroeconomic environment.
The company anticipates non-GAAP diluted EPS in the range of $4.50 to $4.65 for 2025, representing approximately 10% growth. Illumina is implementing a $100 million cost reduction program to mitigate potential revenue impacts, particularly from its Greater China business.
Explore More Investment Opportunities
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📌 50 Undervalued Stocks (Best overall value plays for 2025)
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