Dogs or Darlings? The Dow's 5 Cheapest Picks

One of the hallmarks of improved investor sentiment is when folks are willing to pay ever greater premiums for equities in expectation of future profit growth. And since the market started rallying from its early March lows, it's clear that sentiment seems to be improving -- at least in certain corners of the market.

The forward price/earnings multiple, which divides a company's share price by analysts' average estimate for future earnings per share, for the S&P 500, for example, has risen to 16 from 13 in March, according to The Wall Street Journal Market Data Group.

Such growth is a clear indication that investors are starting to shake off the shock of last year and have regained some appetite for risk, says Hank Smith, chief investment officer of equity at Haverford Investments in Haverford, Penn.

The problem now, Smith says, is that many bigger, "safer" shares have been left in the dust -- and that's keeping a lid on the Dow Jones Industrial Average. The forward P/E on this bastion of the bluest of blue-chip stocks stands at less than 14, down from nearly 18 in March, according to Dow Jones Indexes. So, in other words, as the broader market has gotten more expensive, the Dow has become cheaper.

Such low valuations could lead one to believe that the Dow is just chock-full of blue-chip bargains like the ones SmartMoney recently unearthed. In some cases, that's true. But sometimes cheap stocks are a steal and sometimes they’re cheap for a reason.

Here, then, is a look at the cheapest stocks in the Dow as measured by forward P/E -- and whether these inexpensive bets are expected to become investor darlings or dogs in the next 12 to 18 months.