4 Stocks About as Cheap as They've Ever Been

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The S&P 500 currently trades exactly where it did in December 1998. That's nearly 13 years of stagnation, and a top reason so many have become disenchanted with stocks.

But here's another number that might be just as shocking: During that 13-year period, earnings among S&P companies increased by an average of 6.3% per year, more than doubling in value. By comparison, between 1980 and 2000 -- often seen as the most prosperous period of American business history -- earnings grew by 6.1% a year. The past 13 years have been a terrible time for stock prices, but a glorious time for stock earnings.

That stock returns have underperformed earnings growth likely means that some stocks are as cheap (or close to it) as they've ever been. Do some digging, and you'll find that's exactly the case. Here are four.

(Nasdaq: AAPL  ) shares have actually been one of the best performers of late, gaining 340% over the last five years.

But what's grown far faster? Apple's earnings, which have jumped over tenfold since 2006.

Put those two together, and you get a remarkable figure: Apple now trades at the lowest valuation it's seen in over 10 years. Its current P/E ratio of 16 is less than half the multiple to normalized earnings shares commanded in late 2009, and one-third the level of 2007.

Those figures might overstate Apple's valuation. Since the company doesn't pay a dividend or buy back shares, cash is piling up on its balance sheet. If you back out a conservative amount -- say, half -- of Apple's cash from its current market capitalization, shares trade at less than 10 times forward earnings.

(NYSE: WMT  ) shares increased all of 2.5% over the past decade. During that time, its earnings grew by nearly fourfold. That's caused its P/E ratio to collapse by over 70%.

In fact, Wal-Mart's P/E ratio is now about the lowest it's ever been -- lower than it ever got during the depths of the 2008-2009 market sell-off.

Maybe that's rational? A falling valuation doesn't always mean a cheap valuation, after all. Wal-Mart, however, looks plainly cheap at these levels. Between dividends and share buybacks, cash returned to Wal-Mart shareholders provides a yield of 7.5%, or almost four times the yield on 10-year Treasury bonds.

Wells Fargo
Here's something to think about: In March 2009, Warren Buffett said that if he had to put his entire net worth into one stock (besides Berkshire Hathaway (NYSE: BRK-B  ) ), it would be Wells Fargo (NYSE: WFC  ) . At the time, the bank traded at a price-to-tangible-book ratio of about 1.2. Today, with shares down 20% year to date, Wells Fargo trades at 1.3 times tangible book.  

Indeed, Wells Fargo shares are nearing an all-time low valuation. The banking industry has a mountain of challenges and headaches to deal with, but the most important question for investors is: How much of that is already priced in? At these prices, the answer could be all of it and then some.

(NYSE: HPQ  ) might go down as one of the most mismanaged companies of recent times. Thankfully, it can boast another record: one of the cheapest stocks of recent times.

After burning through CEOs, bumbling acquisitions, and backpedaling on spinoffs, HP's stock is down 35% this year. That's pushed its valuation to an obnoxiously low 5.9 times forward earnings -- up slightly from this summer's trough, but otherwise the lowest ever in the company's history.

Consider this: HP has a market cap of $53 billion, yet it generated more than $9 billion of free cash flow over the last year. Assume HP's new management squanders half of that cash flow on more misguided acquisitions, and shares would still be a bargain.

Your move
Investing might look dreadful these days. The economy is in awful shape, and stocks have been flatlining for a decade. But how misleading and misguided those feelings can be: Corporate profits have never been higher, and the fact that stocks have been stagnant for a decade simply means they're better bargains.

If you're looking for more of those bargains, check out The Motley Fool's free report: "Secure Your Future With 11 Rock-Solid Dividend Stocks.” Just click here to grab a copy.

Fool contributor Morgan Housel owns shares of Berkshire Hathaway and Wal-Mart. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Apple, Wal-Mart Stores, Berkshire Hathaway, and Wells Fargo. The Fool owns shares of and has created a covered strangle position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway, Apple, and Wal-Mart Stores. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores and creating a bull call spread position in Apple. 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.

Read/Post Comments (12) | Recommend This Article (56)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 18, 2011, at 3:09 PM, lucasmonger wrote:

    "4 stocks as cheap as they've ever been" is a horrible title. For Apple, 2002-2003 was a great time to buy at about $13/sh (before the split, so it's really $6.50 per share). Even the $87/sh in 2008 would have been an excellent buy. The current $370 is not as cheap as they've ever been, only as cheap as they've been over the past few months. Foolish readers, don't be fooled by short term swings.

    Now, if I only had a time machine to go back and hoard Apple shares from 2002 to sell them today...

  • Report this Comment On November 18, 2011, at 3:15 PM, bbrriilliiaanntt wrote:

    @lucasmonger -

    Not true, AAPL is as cheap from a valuation perspective as it has EVER been. See this P/E graph of AAPL from YCharts!. Incredible but true...

  • Report this Comment On November 18, 2011, at 4:08 PM, buffalonate wrote:

    lucasmonger, the price of the stock has absolutely nothing to do with how cheap a stock is. The p/e or peg ratio are much better ways to determine how much value a stock has.

  • Report this Comment On November 18, 2011, at 4:39 PM, ldkoehler wrote:

    Speculators might be scared away from WMT by its 2.5% price increase over the last decade, but investor's know that Wal-Mart's current stock price implies that its cash flows will fall by 20% and stay there forever.

    Those are stunningly low expectations for such a consistent performer. Wal-Mart has generated a consistent return on capital above 12% for more than 14 years.

    What matters are my expectations for future performance compared to the market expectations embedded in the stock price, and it seems to me that WMT will have no problem outperforming.

    For more info on market-implied expectations, see this blog post:

  • Report this Comment On November 18, 2011, at 5:34 PM, EBerg13 wrote:

    Dividends, value increases ... I'll take DPM with its 8% divident and 20% + over S&P. People may not be able to afford their toys, which are discretionary after all, but we need our fuel.

  • Report this Comment On November 18, 2011, at 6:46 PM, fctdovr wrote:

    As to secure is their business model going forward. They depend on a vast crumbling infrastructure with a ginormous fleet of trucks that run on expensive fuel to distribute their crappy chinese products all over the land. I question the sustainability of this.

  • Report this Comment On November 18, 2011, at 7:12 PM, deadpsparrow wrote:

    If only wall street would realize the value of AAPL with analysts pointing to a 500 price target on average, the stock should be well on its way to 425 by now

  • Report this Comment On November 19, 2011, at 3:04 AM, lcdyers wrote:

    If only apple can do a 10 for 1 split, more small investors can afford it. the stock price will surely grow much faster than now.

  • Report this Comment On November 19, 2011, at 5:54 AM, Oppknocking wrote:


    I have been under the impression that one of the strengths of Walmart their distribution efficiency. I'm curious as to what your idea of a better distribution model would be...

  • Report this Comment On November 20, 2011, at 8:40 PM, gerrythek wrote:

    Wal-Mart's current P/E is 12.1 Just this past August 10, the P/E was 10.3 Can the author please explain his statement " Wal-Mart's P/E ratio is now about the lowest it's ever been"? If the answer hinges on "about", then $48 is "about" $57 which doesn't cut it as far as I'm concerned.

  • Report this Comment On November 25, 2011, at 9:32 PM, birder1500 wrote:

    In about 6 months we might see perhaps about a lot more cheaper. As for WFC we will see how that tangible book value holds up.

  • Report this Comment On December 11, 2011, at 5:08 PM, thidmark wrote:

    Yes, Walmart is full of "crappy Chinese products" made by 3M, Microsoft, Tyson Foods, Kellogg, Campbell Soups, Coca-Cola, Hormel, Kraft, Miracle-Gro, Briggs & Stratton, Sony, Altria, etc ...

    That's real astute analysis.

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