Stocks: Today's big bargains

NEW YORK (Money) -- Despite the choppy market over the past week, the Dow Jones industrial average has still rebounded more than 14 percent from this year's lows. Nonetheless, lots of blue-chip growth stocks remain unusually cheap.

Based on next year's projected earnings, there are 25 stocks among the Sivy 70 that are currently trading at price/earnings ratios below 15 - and some are substantially below that mark. By contrast, the S&P 500 trades at 16.5 times next year's earnings.

Of course, bargain stocks are often cheap for a reason. Before you scoop them up, you need to consider three things: Does the company have attractive long-term prospects? Why is the stock currently selling at a low P/E? And what would have to happen to make the stock rally?

Often, the factors that depress a blue-chip stock affect many other companies in the same business. Here's a quick sector-by-sector rundown of these depressed stocks.

Consumer: Fortune Brands, Home Depot, Lowe's

Some economists worry that consumer spending could weaken in 2007. Both Home Depot (Charts) and Lowe's (Charts) have strong home-improvement franchises, but are being hurt by the decline in home prices.

Fortune (Charts), a collection of great consumer brand names also has some exposure to the real estate market because of its home-improvement brands, such as Moen faucets.

All three stocks need an improving real estate outlook.

Financials: Bank of America, Citigroup, Merrill Lynch, J.P. Morgan Chase, Washington Mutual, Wells Fargo

The premier brokerage Merrill Lynch (Charts) needs an extended bull market. All the others in this group are banks waiting for the Federal Reserve to lower short-term interest rates.

Washington Mutual (Charts) has the most exposure to housing because of its sizable mortgage lending.

Drugs: Pfizer, Wyeth

Major drug companies need lots of new billion-dollar products to replace older star drugs that are losing their patent protection. Competition from generics will also intensify as brand-name drugs go off patent. But the U.S. drug industry remains the global leader.

Industrial: Caterpillar, Illinois Tool Works, Johnson Controls, Northrop Grumman, Tyco International

Each cheap industrial stock has its own story. Caterpillar (Charts) depends on construction, road-building and the like.

ITW (Charts) makes a variety of specialized mechanical components. Johnson Controls (Charts) is more specifically geared to commercial building and the auto industry. Those areas are all directly sensitive to the economy.

Northrop Grumman (Charts) is a defense contractor. Even if military spending winds down over the next few years, the materiel used up in Iraq will have to be replaced.

Finally, Tyco (Charts) is still trying to find its way following a period of over-expansion and scandal. The company hopes to enhance shareholder value by splitting into three pieces.

Insurance: Aetna, AFLAC, UnitedHealth Group

All three of these companies have sizable health-care insurance operations. Concerns about escalating health-care costs and fears of excessive government interference reflect risks these businesses face that are hard to quantify.

Oil: Anadarko Petroleum, ConocoPhillips, ExxonMobil

Anadarko (Charts) has huge reserves in North America and other politically stable areas. Conoco and Exxon are giant international integrated companies and would basically profit from a long period of high but stable oil prices.

Other: Alcoa, Burlington Northern, IBM

Alcoa (Charts) is cutting costs but still needs an extended period of high aluminum prices. Leading railroad Burlington Northern (Charts) depends on robust economic activity and demand for coal hauling. IBM (Charts) is a well diversified computer company but doesn't have tech-level growth prospects.

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