Einstein is rumored to have defined insanity as “doing the same thing over and over again and expecting different results.”

It’s one of the most useful rules of thumb out there. It’s especially helpful in the money management business.  As the various indices hit record highs, it behooves prudent investors to remember Dr. Einstein’s definition.

There is a cycle that investors get caught up in. When they make money, investors feel good. When a large group of people start to feel too good, market discipline gets a little loosey goosey, especially when it comes to stock valuations. 

As stock price-to-earnings (P/E) ratios start to expand, investors start to rationalize: “Well, it went from 18 to 22, that’s not really that much more.” And before you know it, investors have ventured deep into overvaluation territory. 

I drew a chart looking at peak P/E ratios for the S&P 500 index going back to pre-crash levels in 2006-2007. Honestly, I was surprised and a little alarmed by what I found.

The trailing P/E ratio for the S&P 500 has basically returned to the same level it was before the wheels started falling off of the market in 2007, when the U.S. housing market began deteriorating rapidly.

Does this mean the market is headed for a crash? I wish I could say that I knew. But I don’t.

What I do know is that things can get weird when investors start paying too much for stocks.

As a money manager, I’ve found that if you focus on stocks with forward P/E’s lower than the market, then you may not give up as much once stock prices start to move from overvaluation to realistic pricing.

Here are three large cap stocks with strong franchises, steady numbers and P/E’s much lower than that of the overall market.

AFLAC, Inc. (NYSE: AFL)

When the duck quacks, smart investors listen. I’ve been following this stock for a few years now and I’ve always been impressed with the company’s consistently strong numbers.

EPS Growth	22%
Revenue Growth	6%
Dividend Growth	5%
ROE	19%

Cutesy, yet effective branding aside, Aflac controls the supplemental health and life insurance space in both the United States and Japan, which represents 78% of all pre-tax profits.

The company’s strongest growth potential, though, is in the United States. As Obamacare takes root and Americans adapt to its confines both on the individual and business side, Aflac’s supplemental health plans have an amazing opportunity to proliferate.

Shares trade near $61 with a low forward P/E of 9.8 and a 2.4% dividend yield.

ConocoPhillips (NYSE: COP)

There’s a lot to love about one of the world’s largest independent oil and gas exploration and production companies. Since spinning off its downstream assets in the form of refiner Phillips 66 (NYSE: PSX), ConocoPhillips has emerged as a leaner, meaner, more focused entity.

#-ad_banner-#​The company expects to lead its peers in 2015 production by generating 60% of its output from crude oil and natural gas liquids. The industry average is about 50%.

The highest growth will come from U.S. shale production in the Eagle Ford, Permian Basin and Niobara regions, which accounts for 55% of ConocoPhillips’ 2014 capital expenditure budget of $16.7 billion.

The company also has a lower risk international profile with only 15% of crucial liquids production coming from the less politically stable Middle East and Asia Pacific, while only 16% comes from Europe. This translates to two-thirds of the company’s liquid production originating in North America.

EPS has grown an impressive 19% annually over the last five years while dividends have grown at a respectable 8% clip for the same time period. Shares trade around $80.60 with a forward P/E of 12.3 and an attractive 3.6% dividend yield.

International Paper Company (NYSE: IP)

Sometimes, the biggest isn’t always the best. However, that’s not the case with the leading, global manufacturer of printing papers and packaging products.

For IP going forward, it’s all about the packaging. The company’s acquisition of Temple-Inland in 2012 made the company the country’s biggest producer of linerboard packaging with an enormous 33.5% share of the market.

The biggest opportunity for growth lies overseas with the emergence of the developing world’s rising middle class. As people become more mobile, economically consumption expands and drives the need for product packaging.

While the 8% of global containerboard capacity that IP controls is massive, there’s plenty of room for growth. Recent acquisitions in Russia and joint ventures in Latin American will help the company grow its share of that capacity.

Five year EPS growth has also been on tear delivering compounded average annual growth of 19%. The stock currently trades around $48.20 with a forward P/E of 13.5 and a 2.9% dividend yield; a bargain price for a company of this size with such consistent results.

Risks to consider: All three stocks have decent exposure to economic cyclicality. Thanks to its investment portfolio of more than $100 billion, AFL is subject to interest rate risk. COP is victim to the whims of oil and gas prices. And IP’s success depends on the overall health of consumption based economies. The best defenses against these factors are their lower valuations in relation to the overall market, above average dividend yields and earnings growth that outpaces anemic U.S. GDP growth by a wide margin.

Action to take–> I’m not bearish. However, I have seen investors rationalize stock prices up to levels that are completely unsustainable. The current forward P/E ratio for the S&P 500 is around 17 while EPS for the index are growing around 15%. That doesn’t seem too bad until taking into consideration that the stocks discussed, as a basket, have an average forward P/E of 11.8 and are growing earnings at an average of 16%. That’s 100 basis points (bps) more growth at a 30% discount on a P/E basis. With that in mind, these stocks have a total return potential of 30% when you include the average 2.9% dividend.

No one knows when the next market downturn will be, but that doesn’t mean investors should get scared out of the markets. StreetAuthority’s premium newsletter, Total Yield, uses three criteria to find the world’s safest companies. Not only has the strategy returned an average of 15% per year since 1982, but it’s outperformed the S&P during the “dot-com” bubble and the 2008 financial collapse too. To learn more about his “Total Yield” investing strategy, click here.