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

So despite being the market's cheapest stock on a trailing multiple basis, TRW Automotive 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, General Motors (NYSE: GM), and Chrysler, are struggling (as you may possibly have heard).

Whoops!
Fast-forward 18 months -- TRW is 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 TRW's gains can be attributed to the 35% market rally that acted like steroids for left-for-dead stocks like this one.

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 five 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

Fuqi International

0.1

2.2

0.5

AEGON (NYSE: AEG)

0.2

7.0

0.4

Xinyuan Real Estate (NYSE: XIN)

0.6

3.7

0.4

DRDGOLD (Nasdaq: DROOY)

0.5

4.1

0.7

Bunge

0.3

4.9

0.9

Source: Capital IQ, a division of Standard & Poor's. Includes companies valued more than $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.

Fuqi International, a Chinese jewelry maker, faces heavy investor skepticism over the company's failure to file several critical financial statements. Many of the stocks that came close to making the list -- American Oriental Bioengineering (NYSE: AOB) and China Green Agriculture (NYSE: CGA) are among them -- have been hurt by specific and/or general suspicions.

Like much of the financial world, insurance and money management giant AEGON was hit hard during the financial crisis as much of its securitized portfolio soured. Today, it's attempting to navigate a challenging low-yield world.

Investors are worried about how tightening monetary policies or price declines in the bubbly Chinese real estate market could affect Xinyuan Real Estate.

Gold's obviously been hot lately, but DRDGOLD itself has been plagued by operating difficulties.

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.

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 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 automakers and heavily beaten-down suppliers such as TRW would skyrocket.

Likewise, is Fuqi forthright? Is the potential Chinese real estate slowdown overblown? Can AEGEON and DRDGOLD's managements turn things around? 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 you can tell if the risk-reward tradeoff is in your favor. For example, The Motley Fool's Special Ops team of analysts models several scenarios stocks the dirt cheap in the real-money portfolio they manage. Predicting the relative likelihoods of various returns helps them determine whether the price is right and to provide members with guidance on the appropriate allocation for each recommendation.

So if you decide to further look into these five stocks, 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 Special Ops and to receive a video discussing three cheap stocks lead advisor Tom Jacobs likes right now.

This article was originally published Nov. 8, 2008. It has been updated.

Ilan Moscovitz owns shares of China Green Agriculture. General Motors is a Motley Fool Inside Value recommendation. Ford Motor is a Motley Fool Stock Advisor pick. China Green Agriculture is a Motley Fool Global Gains choice. The Fool owns shares of China Green Agriculture. 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.