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There are lots of ways to determine whether or not a stock is expensive. No single method is perfect, but a company's price-to-earnings ratio (P/E) is by far the most popular. Looking at all U.S.-based stocks valued at over $10 billion, we can get an idea of which blue-chip stocks are the cheapest right now.

As you'll see below, the market's five cheapest big-cap stocks are concentrated in just two industries -- and they're all names you should recognize. But are any of them buys at these prices?

Three airlines facing severe headwinds

Three of America's biggest airlines find themselves on this list: Delta (NYSE:DAL), American Airlines (NASDAQ:AAL), and the cheapest of the bunch, United Continental (NASDAQ:UAL).



United Continental


American Airlines




Data source: E*Trade.

Instead of diving into all three of these companies individually, I think it's more instructive to take a look at what's going on throughout the industry.

While airlines have benefited from low fuel costs, those gains have been offset by losses in a key metric: passenger revenue per available seat mile (PRASM). In essence, this lets investors know how efficiently an airline is running.

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As fellow Fool Adam Levine-Weinberg pointed out, there are lots of potential reasons for this: a stronger dollar, fuel surcharges, and -- since Adam wrote the piece -- the Brexit vote. "However, the fundamental reason for the sharp unit revenue declines is that capacity is growing much faster than demand."

So does that mean these stocks are worth buying right now? It depends on the type of investor you are. I like to buy companies that have huge competitive moats and are changing the way the world works. Right now, airlines don't fit that bill.

But if you're looking for value stocks, all three of these are worth at least a look. It will take time for these three airlines to cut capacity. The major unknown is where gas prices will sit once that occurs. If macroeconomic forces work in these companies' favor, then they could rebound in a big way.

Are we at the top of a car-buying cycle?

The other two companies with bargain-basement P/Es are American icons: Ford (NYSE:F) and General Motors (NYSE:GM).



General Motors




Data source: E*Trade.

Cyclical stocks can be a nightmare for beginning investors. Just when stocks look their cheapest, they plummet. And just when they look super-expensive, they boom. Car manufacturers' business is highly cyclical. In the U.S. and around the world, there are definite peaks and troughs in vehicle sales. At one extreme, sales will come to a grinding halt -- typically during tough economic times -- and at the other, there's such a flurry of car-buying that supply can barely keep up with demand.

Because "earnings" are the denominator of P/E, this metric can be somewhat misleading. At the bottom of the cycle -- just before the buying gets started -- earnings are usually so low that they make the stock look expensive. The exact opposite is true at the top of the cycle -- which is where many investors think we are now. In other words, a low P/E can indicate that it's a bad time to buy an automaker.

One difference between these automakers and the airlines is that Ford and GM offer large dividend yields of 5% and 5.1%, respectively.

As you can see, however, Ford's dividend looks much more sustainable at the moment.

Over the past 12 months, GM has used 84% of its free cash flow to pay out its dividend. There's nothing wrong with that, but taking a broader view of the company's history, it's clear that there's not that much room for growth left if business doesn't pick up significantly.

Ford, on the other hand, has seen its free cash flow explode over the past three years. Currently, it's only using 25% of its free cash flow to pay out its dividend. That high-yield dividend looks very safe.

So if you were deciding between these two companies, I would recommend Ford. If we're truly at the top of a car-buying cycle, and earnings are about to start dropping off, then it's far more likely that Ford can continue paying its dividend. That will allow long-term investors to keep collecting payouts through thick and thin, or perhaps automatically reinvest those dividends in more shares.

There's more to a stock than its P/E

There's a good reason why all five of these stocks are cheap. The airline industry is dealing with a supply glut, and investors are worried that car buying will start to slump. I think Ford is poised to emerge as the strongest bet five years from now, but only time will tell if I'm correct.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.