It's been more than a year since I first identified the market's cheapest stock and commented:

Despite being the market's cheapest stock on a trailing multiple basis, TRW Automotive (NYSE: TRW) may not be a great stock for you to buy. The company has done an admirable job in the past few years growing sales and earnings while diversifying its customer base. Still, it operates in a pretty brutal, low-margin industry against more than 15 major competitors. And three of its top four customers, Ford (NYSE: F), General Motors, and Chrysler, are struggling (as you may possibly have heard).

Whoops!
Fast-forward 18 months -- TRW up more than 470%. Although I may have called attention to the stock's cheapness, my suggestion that it probably wouldn't be a great buy turned out to be dead-wrong.

Yes, it was correct to note that TRW was a risky name, that a lot could go wrong with dire consequences for the stock. And yes, a portion of the TRW's gains can be attributed to the 35% market rally that acted like steroids for left-for-dead stocks like TRW.

But in the end, the auto industry survived and TRW rebounded, proving that not a lot has to go right for you to make serious profits on cheap stocks.

The market's 5 cheapest stocks today
So armed with Capital IQ, an institutional database, and the same methodology used to discover TRW, I wanted to identify the market's 5 cheapest stocks today. (I ranked the stock universe by price-to-sales, price-to-earnings, and price-to-book value ratios, and chose the stocks with the lowest combined rankings.)

Here they are:

Company

Price-to-Sales Ratio

Price-to-Earnings Ratio

Price-to-Book Value Ratio

Imperial Sugar (Nasdaq: IPSU)

0.21

1.1

0.7

Fuqi International (Nasdaq: FUQI)

0.16

3.4

0.7

Corinthian Colleges (Nasdaq: COCO)

0.32

3.1

0.7

Bunge Limited (NYSE: BG)

0.27

4.5

0.8

Audiovox (Nasdaq: VOXX)

0.16

7.1

0.4

Data from Capital IQ as of Nov. 1. Includes companies valued over $100 million traded on major U.S. exchanges.

Of course, like TRW before its incredible run, many of these companies are facing strong headwinds. They wouldn't be trading for such cheap multiples otherwise.

Imperial Sugar is dealing with higher raw sugar prices and a plant that isn't yet up to full capacity from a 2008 explosion. Its profits over the past year are largely due to an insurance settlement.

Fuqi International, a Chinese jewelry maker, faces heavy investor skepticism over the company's failure to file several critical financial statements.

Corinthian Colleges has gotten hammered as the Obama administration cracks down on abusive practices at for-profit colleges. The Department of Education announced rules intended to protect students from misleading recruitment and enormous student debt. Other rules that could tie federal subsidies to the performance of those schools and the amount of student debt, were delayed, but could be coming down the pike.

Bunge's P/E is likely understated because its blockbuster earnings were largely driven by an enormous gain on the sale of its Brazilian fertilizer assets to Vale.

Audiovox, a distributor of consumer electronics, has been hit hard by weak consumer spending. Although OEM sales to car manufacturers are rebounding somewhat as customers such as Ford enjoy improving sales, consumer sales and accessories remain slow, and the company struggled to turn a profit last quarter.

Before you buy
So what are the key takeaways from TRW and the five cheap stocks listed above?

Have a thesis. Every stock has potential rewards and risks. The trick is to identify what the most crucial pieces of evidence for each investment.

Anyone interested in then-crazy-cheap TRW when I wrote about it in early 2009 would have wanted to keep an eye on TRW's major customers -- the auto industry. Had I done so, I might have realized that "cash for clunkers" and the General Motors and Chrysler rescues would help to save the auto makers, and heavily beaten-down suppliers such as TRW would skyrocket.

Likewise, what are the chances Imperial Sugar's costs will fall and production increase? Is Fuqi forthright? Are regulatory crackdowns on Corinthian and consumer spending fears for Audiovoxx overblown? These are the sorts of questions we should be asking about the cheapest stocks today.

Know why you're buying a stock, what you expect to see happen to that company, and revisit your thesis from time to time to see if it's playing out as you expected. That way you can determine if it's time to buy more, hold, or sell.

Know your odds. You want to have an understanding of the potential upside and downside for stocks you own so that you can tell if the risk-reward trade-off is in your favor. For example, The Motley Fool's Million Dollar Portfolio team of analysts models several scenarios for every stock in the real-money portfolio they manage. Predicting the relative likelihoods of various returns helps them to determine whether the price is right, and to provide members guidance on the appropriate allocation for each recommendation.

Based on a fairly cursory look, Corinthian Colleges may be one of the more appealing stocks of this very risky bunch. If the crackdown on Corinthian leaves half of the company's earnings intact, by no means a sure thing, the stock would be trading for 6 times forward earnings. Similarly, if Imperial Sugar manages to ramp earnings back up to 2007's pre-explosion earnings, it would be trading for 4 times.

So if you decide to look into these five stocks further, determine and track your thesis, and only buy if you feel comfortable with the level of risk these stocks carry. TRW's 470% gain demonstrates that these are the best ways to separate the market's best values from the value traps.

And if you're looking for thoroughly vetted stock ideas as well as buy-and-sell guidance for your portfolio, simply enter your email address in the box below to find out more about Million Dollar Portfolio.

Ilan Moscovitz doesn't own shares of any company mentioned. Ford Motor is a Motley Fool Stock Advisor choice. 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.