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Buy These 7 Amazing ETFs Trading at Low P/E Ratios

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The Wall Street rally hit a brake in Aug 17 trading session with the Dow Jones and the S&P 500 each snapping five-day winning streaks as concerns about slowing global economic growth intensified. This is especially true, as the surging cases of the Delta variant of COVID-19 may induce further shutdowns to contain a fast-spreading pandemic, thereby hampering the sustained recovery.

Additionally, weak data from China on retail sales and industrial production points to the slowdown in its economy. U.S. retail sales for July also came in weaker than expected and U.S. consumer sentiment dropped sharply in early August to its lowest level in a decade. Notably, the U.S. equity markets dropped the most in the last 30 days.

However, the stock market seems to have rebound shortly given the positive momentum. U.S. stocks have been hitting series of new highs lately buoyed by a strong earnings season, the passage of a large infrastructure bill and signs of easing inflation. The Q2 earnings picture has been one of all-round strength, with aggregate total quarterly earnings on track to reach a new all-time record and impressive momentum on the revenue side. Meanwhile, the Senate last week had passed a $1 trillion infrastructure bill, which would be one of the most substantial federal investment in roads, bridges and rails in decades. The bill, which includes $550 billion in new spending on roads, bridges, and Internet access, will now head to the House of Representatives.

The U.S. economy returned to the pre-pandemic level with GDP rising 6.5% annually in the second quarter, indicating a sustained recovery from the pandemic recession. Rapid vaccinations, business reopening and trillions of dollars of government stimulus spending will continue to power consumer spending and result in robust growth (read: ETFs to Buy on Most-Bullish Wall Street Outlook in Two Decades).

Given the bullish fundamentals, the dips might charge up investors to snap up ETFs on the cheap for outsized gains in the coming weeks.

How to Find Bargain ETFs?

Using our database, first we have selected ETFs with a Zacks Rank #1 (Strong Buy) or 2 (Buy). This is because these ranks suggest strengthening fundamentals and superior weighting methodologies that could allow them to lead higher than their cousins in a booming market. Then, we narrowed down the list to funds having a lower P/E ratio than 22.2 for the broad market fund (SPY - Free Report) .

Here are the seven ETFs from different zones of the market that are currently undervalued and could generate solid returns in a rising stock market.

First Trust Financials AlphaDEX Fund (FXO - Free Report) – P/E Ratio: 9.72

This fund targets the broad financials sector and follows the StrataQuant Financials Index, which employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index. Holding 105 stocks in its basket, the ETF has amassed $1.4 billion and charges 62 bps in annual fees. It trades in an average daily volume of 256,000 shares and has a Zacks ETF Rank #2.

SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) – P/E Ratio: 10.6

This fund provides exposure to oil and gas exploration companies by tracking the S&P Oil & Gas Exploration & Production Select Industry Index. It has amassed $3.4 billion and holds 54 securities in its basket. The product charges 35 bps in annual fees and trades in an average daily volume of 7.2 million shares. It has a Zacks ETF Rank #2 (read: Tough Time for Energy ETFs on Oversupply Concerns?).

First Trust Dow Jones Select MicroCap ETF (FDM - Free Report) – P/E Ratio: 11.22

This ETF tracks the Dow Jones Select Microcap Index, which represents microcap stocks that are comparatively liquid and have strong fundamentals. It holds 148 stocks in its basket with AUM of $165.1 million and trades in an average daily volume of 12,000 shares. The fund charges 60 bps in annual fees and has a Zacks ETF Rank #2.

Principal Value ETF (PY - Free Report) – P/E Ratio: 12.46

With AUM of $69.2 million, this ETF follows the Nasdaq US Shareholder Yield Index, which uses a quantitative model designed to identify equity securities of mid- to large-capitalization companies in the Nasdaq US Large Mid Cap Index that exhibit higher degrees of shareholder yield. It holds 119 securities in its basket with an expense ratio of 0.15%. The product trades in an average daily volume of 16,000 shares and has a Zacks ETF Rank #2.

SPDR S&P Homebuilders ETF (XHB - Free Report) – P/E Ratio: 13.19

This ETF provides exposure to homebuilders with a well-diversified exposure across building products, home furnishing, home improvement retail, home furnishing retail and household appliances. It is the most-popular option in the homebuilding space with AUM of $2 billion and an average daily volume of 2.1 million shares. The product charges 35 bps in annual fees and has a Zacks ETF Rank #1.

SPDR S&P Retail ETF (XRT - Free Report) – P/E Ratio: 14.45

With AUM of $1.2 billion, this product targets the broad retail sector by tracking the S&P Retail Select Industry Index. It holds 107 securities in its basket with the key holdings in the automotive retail, Internet & direct marketing retail, apparel retail, and specialty stores. The fund charges 35 bps in annual fees and trades in volume of 2.3 million shares a day on average. It has a Zacks ETF Rank #2 (read: Bet on Top-Ranked Sectors With These ETFs & Stocks).

SPDR S&P Transportation ETF (XTN - Free Report) – P/E Ratio: 15.07

This fund offers broad exposure to the transportation sector with the largest allocation to trucking, air freight and logistics, and airlines. It follows the S&P Transportation Select Industry Index, holding 45 stocks in its basket. With AUM of $494.9 million, the fund charges 35 bps in fees per year from investors and trades in a moderate volume of around 99,000 shares a day. It has a Zacks ETF Rank #2.