Are the 4 Cheapest Dow Stocks Really Good Bargains?

With the Dow Jones Industrials (DJINDICES: ^DJI  ) still trading close to all-time record highs, you might think that you couldn't find any attractively priced stocks among the 30 components of the blue-chip benchmark. But when you look at their share prices compared to projections for future earnings, you can actually find a good number of stocks trading at reasonable valuations. Still, low earnings multiples don't always equate to good value, so let's take a closer look at JPMorgan Chase (NYSE: JPM  ) , Chevron (NYSE: CVX  ) , IBM (NYSE: IBM  ) , and Travelers (NYSE: TRV  ) to see if their shares really are smart bargains or whether there's a good reason for them to fetch a lower valuation compared to their earnings.

At just 9.95 times next year's earnings, JPMorgan is the only stock in the Dow to have a forward P/E less than 10. Yet the real question for investors to answer with the Wall Street bank is whether earnings have hit a cyclical peak, or whether future earnings growth is actually realistic. Bearish investors have argued that regulation would essentially cap earnings power for JPMorgan well below its pre-crisis levels. But even modest growth would be enough to make JPMorgan stock look attractive at current prices, especially if the bank continues to raise its dividend and strengthen its balance sheet.

Source: 401(k) 2013.

Chevron weighs in at 10.4 times forward earnings estimates, but here, there's an even bigger concern that cyclical factors could shrink earnings in the near future. Just earlier this week, Chevron issued preliminary figures from its fourth quarter that showed production drops and falling realization prices for its upstream segment, causing the stock to drop in response. Oil prices have remained relatively high, but even slight deterioration in energy prices has hurt Chevron's profit potential. It'll take huge amounts of effort for Chevron just to maintain production levels, let alone grow them. That makes Chevron's valuation a bit more justified than some other cheap stocks.

IBM trades at 10.6 times projections for forward earnings, and even though the tech giant has suffered from falling revenue levels lately, so far, they haven't translated into a drop in earnings per share. Immense buybacks have played a big role in boosting earnings projections, with Big Blue still seeking $20 in earnings per share by 2015. Even though IBM faces plenty of challenges, bullish investors have high hopes for growth opportunities as the company keeps striving to lead in the data-analytics area as well as cloud computing more broadly.

Travelers had a good 2013, thanks largely to a lack of major loss experience after two previous years of harsh storms. Few expect 2014 to go as well as 2013 did, making forward earnings projections somewhat misleading in terms of long-term earnings growth. The big question for Travelers is whether rising interest rates will hurt its bond investment portfolio more than higher yields will help its overall income. Still, until the next bad storm hits, Travelers looks like a solid pick in the insurance industry.

Be smart with value
It's never enough just to look at earnings multiples without assessing growth prospects and other fundamentals. For these Dow stocks, varying levels of promise make them appropriate for different investors, depending on your risk profile and time horizon.

Get the best
When it comes to value stock candidates, there's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (0) | Recommend This Article (3)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2791784, ~/Articles/ArticleHandler.aspx, 9/5/2015 12:27:53 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated 15 hours ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 4:30 PM
^DJI $16102.38 Down -272.38 -1.66%
CVX $76.67 Down -1.59 -2.03%
Chevron CAPS Rating: ****
IBM $143.70 Down -3.08 -2.10%
International Busi… CAPS Rating: ****
JPM $61.50 Down -1.18 -1.88%
JPMorgan Chase & C… CAPS Rating: ****
TRV $97.76 Down -1.61 -1.62%
The Travelers Comp… CAPS Rating: ****