The Cheapest Stock in the S&P 500 (Can You Guess It?)

When it comes to spending money, I love a good bargain.

Seriously… I shop for my family’s groceries at Costco. I use reward points to get a few cents off at the gas pump. And when I take the family out for dinner, I always pull out the “kids eat free” coupons.

Yep, I’m THAT guy!

And judging from the emails I get from our readers, chances are good that you love a good deal as well!

Today, I’ve got a deal for you. It’s an opportunity to invest in the cheapest stock in the market right now. And by cheapest, I mean that you’re getting more profit for every dollar you invest than you would get from any other stock in the S&P 500.

But here’s my question… Do you know which stock this is?

Don’t cheat and scroll down yet! I’ll give you a hint.

It’s the stock of an iconic American company, and I’ve got one of their products sitting at my house right now.

Think you know the stock? Send me a quick email with your guess.

Here’s How to Know What Stocks Are Really Cheap

Investing is a simple game when you think about it. You simply buy stocks at low prices, sell stocks at high prices, and keep building your profits!

But of course, we know it’s a lot easier said than done.

Stocks with low prices can often go even lower. And it’s always tough to know when a high-priced stock has actually hit its peak. That’s why I spend so much time researching markets and figuring out exactly why stocks are trading low or high, and where prices are headed from here.

One concept that makes a big difference when finding deals on Wall Street — and in the aisles of Costco as well — is to look more carefully at what you’re getting for every dollar you spend.

This is pretty easy if you’re grocery shopping. A big box of goldfish crackers at Costco might cost $12 compared to the box somewhere else priced at just $3.99. But when you buy the Costco box, you’re getting about five times as much. And just about every grocery store will have the price per ounce posted by the item.

That way you can easily compare how much you’re actually getting for every dollar you spend on a particular item.

Did you know that stocks have a similar metric? One that lets you know exactly what you’re getting for every dollar you invest?

The metric is called the “price earnings ratio” — or PE Ratio. This statistic tells investors how much they have to pay for every dollar in profit that the company generates.

Remember, when we buy shares of stock we’re actually purchasing a part of the company. So the more profit our company generates, the better!

When I buy shares of a stock, I want to make sure that the company is generating an attractive amount of profit for every dollar that I invest. So it’s helpful to remember that the lower the PE ratio, the less I’m paying for every dollar of annual profit.

I’m always looking for the best deals for our Daily Edge family. So let’s take a look at a “limited time opportunity” to buy one of my favorite stocks at a discount price.

The American Auto Company with a Low Sticker Price

The cheapest stock in the S&P 500 right now is General Motors (GM).[1] Did you get it right? Let me know!

Shares of GM are currently trading near $35. And the company is expected to generate $6.24 in earnings per share next year.

If you take the stock price of $35 and divide it by $6.24 per share in earnings, you get a PE ratio of 5.6.

That’s an extreme discount, especially for a company that has such a well-known brand, and a stable business with domestic and international profits.

Good investors (and good shoppers) who see a cheap price will always be a bit skeptical: “Why is the price so low? Is there something wrong with this stock that I should know about?

In the case of GM, there are a few reasons Wall Street is offering a discount.

Reason #1: GM isn’t exactly a “sexy stock.” You’ve probably seen a number of exciting headlines about Tesla’s new models that can do everything but cook breakfast for you on your commute. So investors seem to be focusing much more on new electric vehicle technology rather than looking at this “boring” car company that just keeps generating profits month after month.

Sometimes Wall Street just gets tired of stable profits.

Reason #2: GM isn’t exactly known for cutting edge technology. And in today’s market, investors are thinking a lot more about autonomous driving, ride hailing fleets, and even trends like off-site working that will cut into the number of miles commuting to work.

But GM is actually quite active behind the scenes when it comes to driverless technology. The company’s “Cruise Automation” unit is a division focused entirely on building the most advanced self-driving vehicles. And that unit was recently valued at $19 billion, nearly 40% of GM’s $49.8 billion market valuation.

Reason #3: Investors are worried about how GM could be affected by the trade war with China. GM could have to pay higher costs for steel parts and other items imported from China. And there are questions about how the trade war will affect GM’s ability to sell cars to the Chinese market.

But GM still has a joint venture in China that at the very least allows the company to participate in a limited amount of Chinese profitability. And we need to consider the possibility of a trade deal actually being arranged with China that would lead to a more level playing field for GM as well.

So if you’re a shopper wondering why we’re getting shares of GM so cheap, these are the concerns that Wall Street investors care about.

But when it comes to this American auto manufacturer, the benefits certainly outweigh the risks.

General Motors: Cheap Price, Lucrative Income, and Profit Stability

When it comes to the reasons you should want to invest in GM, the argument is pretty convincing.

First, we’ve already talked about the cheap price for GM. I’ve had to check my math several times to make sure I’m not missing something.

But even Wall Street research firm Barclays Capital agrees with me. Their analysts went even further and determined that if you take out the Cruise Automation unit, investors are paying a PE ratio of just 2.7 for GM’s core auto making business.

In my two decades of investing, I don’t think I’ve ever seen such a discount for a solid profitable company like this!

A second reason you should buy shares of GM right now is the company’s dividend.

GM pays a 38-cent quarterly dividend. Which means that if you buy shares near $35 today, you’ll be paid a 4.3% yield. And that’s in addition to any profit you make from shares of GM moving higher.

A third reason GM shares are so attractive is the stability of the company’s profits. This is important today, because we’re starting to see a few proverbial clouds gathering on the horizon.

I still think the American economy is in good shape. But even if I’m wrong and a recession causes GM to lose 25% of sales, the company should still be profitable. So we’re getting a company that has a lot of safety built in to their business model!

As we head into the summer vacation months, I expect GM to sell a lot of vehicles. In particular, SUVs and pickup trucks have been growing in popularity. That’s great because these vehicles carry bigger profit margins and should help GM generate even higher profits.

So today, make sure you’re taking advantage of the best deal Wall Street has to offer. You’re going to love the cheap price today, and your wealth will grow as the stock price trends higher, and your dividends steadily accumulate.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge

1 Tesla Stock Is in Trouble, and Elon Musk Has Gone From Iron Man to Inspector Gadget, Barron’s

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