The 4 Cheapest Stocks in the S&P 500

The S&P 500 has been hitting record highs lately, leading some to wonder whether the stock market is overpriced. Yet when you look at certain stocks within the S&P, you'll notice a few with very low share prices, making it seem like perhaps they're a better deal.

By itself, share price can't tell you how much a company is worth, as you also have to look at the number of shares that are outstanding. For instance, Bank of America has a relatively low share price of around $13, which is just a fraction of most of its big-bank peers. Yet B of A has far more outstanding shares than most of its peers, putting its overall market cap much closer to its rivals' figures.

Even with that caveat, low share prices can indicate that a stock hasn't performed to its full potential. So with that in mind, let's take a closer look at the four stocks in the S&P that have the cheapest shares.

4. Sprint Nextel , $7.32
Sprint has plunged in value since the end of the tech bubble in the late 1990s, with shares back then fetching as much as $70 per share. Even after the stock's impressive rebound over the past year, it still trades at barely a tenth of its all-time high.

Right now, the big question for Sprint's future involves who'll win a fight to take a major stake in the company. With Japan's Softbank having made a bid only to have DISH Networkcome in with a rival offer, Sprint has no shortage of buyers who apparently see value in the company's assets. For longtime shareholders, though, the gains will be too little too late to rescue them from substantial losses.

3. LSI , $7.23
Chipmaker LSI has gone through much of the same experience as Sprint, with its shares also having traded above the $70 mark in early 2000 before the bottom fell out of the tech sector. Since then, the company has seen little movement in its share price, as the semiconductor industry goes through cyclical ups and downs without any firm upward trend.

LSI's future depends largely on its ability to find lucrative niche areas like flash storage and networking chips that can play a role in the Big Data revolution that's going on right now. Yet given the huge amounts of competition in the area, LSI faces a tough road ahead to make the most of its opportunity.

2. Frontier Communications , $4.42
Unlike the previous two stocks, Frontier has been on a fairly steady downward path for years. The stock has paid out an impressive dividend thanks to its rural telecom business, which produces substantial amounts of cash flow. But ever since it took on a massive acquisition of assets from Verizon, Frontier has struggled under a much larger debt load, and that has hampered Frontier's ability to sustain its dividend.

For Frontier to manufacture a turnaround, it will need to go beyond its traditional landline voice offerings to get customers to use broadband and other higher-margin services. Without successfully making that transition, Frontier's shares could continue to dwindle away.

1. Advanced Micro Devices , $4.07
AMD has long played second-fiddle in the PC processor space, and periodic bouts of optimism have inevitably given way to harsh reality. More recently, the company's efforts to diversify into the mobile arena have met with the same resistance as in the PC market, albeit from a different set of players that were quicker in recognizing the potential growth from mobile chips.

Within the past few weeks, AMD has soared on hopes that its placement in some new gaming consoles will help the business reverse its slide. Yet gaming alone won't be nearly enough for the company to find a viable long-term strategy, and until AMD can make a meaningful impression in the fast-growing mobile space, its stock is unlikely to climb much above its current levels.

Look beyond share price
Don't let low share prices deceive you into thinking that a stock is automatically a good value. If fundamentals like earnings and cash flow don't support their valuation, they can be just as overpriced as a stock that trades 10 times higher. All four of these companies have faced some big struggles in the past, and while they still have potential to post future gains, they nevertheless need to work hard to overcome the obstacles in their path.

Even now, when it comes to dividend yields, you won't find many higher than Frontier Communications. While its juicy dividend is tempting, every Frontier investor has to understand that investors might be destined for another disappointing dividend cut. In this premium research report on Frontier Communications, we walk you through all of the key opportunities and threats facing the company.

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Fool contributor Dan Caplinger owns warrants on Bank of America.You can follow him on Twitter: @DanCaplinger. The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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