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The Dow's 5 Cheapest Stocks

Lately, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) 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 (NASDAQ: INTC  ) , 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 (NYSE: CAT  ) , 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 (NYSE: JPM  ) , 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 (NYSE: CVX  ) , 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 (NYSE: XOM  ) , 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.

Read/Post Comments (5) | Recommend This Article (15)

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 May 25, 2013, at 7:16 PM, constructive wrote:

    "But there aren't any sustainable competitive advantages that give Intel a leg up."

    Other than the brand, the vast amounts of intellectual property, the scale, and the world-beating capital investments?

    Certainly they have more competitive advantages than commodity companies like XOM and CVX.

  • Report this Comment On May 25, 2013, at 7:18 PM, constructive wrote:

    And how could I forget the x86 ecosystem? That is a monster competitive advantage.

  • Report this Comment On May 25, 2013, at 8:59 PM, kthor wrote:

    all boring stocks

  • Report this Comment On May 25, 2013, at 9:20 PM, stretcho44 wrote:

    Intel ....

    "core PC market is slowly eroding"

    IDC suggests that in 2013, worldwide shipment of desktop PCs will be 155.7mil units, up from 153.0 in 2012. IDC forecasts 162.0mil units in 2016

    Portable PC 2013 of 235.5mil units, up from 214.7 in 2012 and projects 321.1 units in 2016.

    IDC estimates 191.1mil tablets will ship in 2013 and that will increase to 370.0 mil in 2017 for a CAGR of 16.6%.

    IDC defines a portable PC with a detachable keyboard as a "tablet". What you see happening is a flat desktop PC market and a portable PC that is growing faster than desktop. The portable growth is deceptively slow growth because IDC and others are struggling to distinguish a Portable PC with detachable keyboard from a low end tablet media consumption device.

    If Brian Stoffel says that Intel is fairly priced without considering the HPC market or other activities Intel is involved in. Sounds good to me.

    If Brian did a little more digging, he might add some clarity where versus the typical copy/paste Motley Fool article where the author is interested in publication quantity and not quality.

    32nm Intel ATOM becomes competitive and garners design wins. Guess what happens when the 22nm Intel ATOM Silvermont based design is shipped next quarter.

    The x86 Power Myth Busted: In-Depth Clover Trail Power Analysis

    The ARM vs x86 Wars Have Begun: In-Depth Power Analysis of Atom, Krait & Cortex A15

  • Report this Comment On May 26, 2013, at 4:23 AM, lanceim59 wrote:

    Boring stocks normally outperforms exciting stocks in the long run.

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Related Tickers

9/28/2016 11:14 AM
^DJI $18194.03 Down -34.27 -0.19%
CAT $84.23 Up +1.35 +1.63%
Caterpillar CAPS Rating: ***
INTC $37.29 Up +0.11 +0.30%
Intel CAPS Rating: ****
JPM $66.11 Down -0.25 -0.38%
JPMorgan Chase CAPS Rating: ****
XOM $83.54 Up +0.30 +0.36%
ExxonMobil CAPS Rating: ****