The Dow's 5 Cheapest Stocks
Lately, the Dow Jones Industrial Average has been hitting record high after record high. That has a lot of people wondering whether we're entering bubble territory. But not every stock is doing so well -- in fact, some are downright cheap.
A great metric to help investors decide whether a stock is cheap is its price-to-earnings ratio. This tells you how much a stock is worth relative to how much money its company made over the past year. Right now, the average Dow stock trades for a P/E of 16.7.
For comparison's sake, the Dow's five cheapest stocks -- all listed below -- have P/Es far lower than this average. But as you'll see, that doesn't necessarily mean they're all strong buys right now.
5. Intel , P/E of 12
Ever since computing became more mobile and less focused on desktop PCs, investors have worried about Intel. Before smartphones came along, Intel held a commanding 80% market share in the semiconductor industry. But the company was late to the mobile game, and the core PC market is slowly eroding.
Intel is doing everything it can to stay relevant, and some of the new microchips show a lot of promise. But there aren't any sustainable competitive advantages that give Intel a leg up. If you're confident in the company's ability to continually outwit the competition, today's price might look cheap. Otherwise, it seems fairly valued.
4. Caterpillar , P/E of 11.7
Caterpillar's low price tag has everything to do with slow global demand. The company recently cut its full-year forecast, as the world's mining industry doesn't seem to need so many Caterpillar machines as investors hoped for.
However, Caterpillar is investing heavily in quickly growing markets like Latin America, Asia, and even Africa. In the long term, the mining sector is likely to pick up, and Caterpillar has a dealer network that's second to none. If you're looking to invest over a 10-year time frame, Caterpillar is likely a good bet at today's prices.
3. JPMorgan Chase , P/E of 9.5
Fellow "too-big-to-fail" banks Wells Fargo, Citigroup, and Bank of America have an average P/E of 23.7 -- much higher than JPMorgan.And the bank escaped the Great Recession with a relatively unscathed reputation.
But things haven't been rosy lately. Ever since the "London Whale" trading incident cost the company billions of dollars, internal weaknesses have been popping up everywhere. Fellow Fools John Reeves and Ilan Moscovitz did an excellent job recently of pointing out why you should avoid investing in the bank -- and why shares are likely trading so cheaply.
2. Chevron, P/E of 9.5
Sometimes, it can be tough for large oil companies to get much love from Wall Street. With a market cap of more than $240 billion and sales expected to remain relatively flat over the next four years, it's understandable that most investors aren't willing to pay a premium for Chevron.
At the same time, however, the company has been smartly buying up unconventional oil plays, like those in Australia and in the deep waters of the Gulf of Mexico. Over the next 10 years -- if the developing world's appetite for energy steadily increases -- energy prices will likely rise, and Chevron shareholders will benefit. With a nice 3.2% dividend yield to tide you over until then, investors can get a pretty good deal on the stock right now.
1. ExxonMobil , P/E of 9.3
Though ExxonMobil lost its title as the world's most valuable company to Apple for a brief time in 2012, it's back in the driver's seat now. And when you consider the fact that it's both the cheapest stock in the Dow and the most valuable company in the world, it really shows how impressive Exxon's earnings are.
Not only is the company a beast in the oil industry, but it is also America's largest natural-gas producer. As with Chevron, Exxon shareholders are likely to benefit from long-term increases in energy prices. Though the company's 2.7% dividend yield isn't so high as Chevron's, its asset diversity offers greater protection from downturns. The company is a good bet at today's prices.
Interested in Intel?
When it comes to dominating markets, it doesn't get much better than Intel's position in the PC microprocessor arena. However, that market is maturing, and Intel must find new avenues for growth. In this premium research report on Intel, a Motley Fool analyst runs through all of the key topics investors should understand about the chip giant. Click here now to learn more.
The article The Dow's 5 Cheapest Stocks originally appeared on Fool.com.Fool contributor Brian Stoffel owns shares of Apple. The Motley Fool recommends Apple, Chevron, Intel, and Wells Fargo. The Motley Fool owns shares of Apple, Bank of America, Citigroup, Intel, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.