The biggest factor driving the price of a stock is what people are willing to pay for it. Profits and sales aside, it’s market sentiment that really matters.
But, because of that, companies with the most promising future can see their share price rocket beyond what their income statements would seem to warrant. Likewise, plenty of older, established companies are making money hand over fist — but once they’ve lost that new stock smell, investors might overlook them in favor of the flavor of the month.
Here’s a look at some inexpensive alternatives to some of Wall Street’s most notable stocks. Obviously, cheap isn’t always better. In plenty of cases, there’s a good reason why the markets are high on one stock and not the other, but there is always a decent chance these companies could prove a real bargain in the long run.
Click through to see which companies are offering the best deal on the profits they’re making.
What Makes a Stock ‘Cheap’ or ‘Expensive’?
When asking what makes a stock cheap or expensive, you have to look past the price of individual shares.
Market capitalization — aka market cap — refers to the total value of all of a company’s stock. Although Amazon might have a share price over $1,400 to just over $150 for Apple, it’s because Amazon has a “float” — the total number of shares — about 400 million to Apple’s just over 5 billion. So Amazon’s value is far less — a market cap about $650 billion to Apple’s approximately $850 billion — despite shares selling for almost 10 times more apiece.
Likewise, market experts also use numbers like the price-to-earnings ratio or price-to-sales ratio to compare the price of a stock to the company’s profits or revenue. A P/E ratio is the ratio of the company’s market cap to its net profits, whereas P/S is the market cap compared to the total revenue.
Stocks that offer more profits and revenue for every dollar spent on its shares are considered cheap, whereas, those companies with sky-high share prices but relatively little profits to show for it are generally seen as being expensive.
Market Cap: $45.2 billion
Alternative for: Tesla
Even after losing over a third of its value in just a few weeks, Elon Musk’s Tesla is worth more as a company than Ford is, with a market cap of $51.3 billion to Ford’s $45.2 billion. Ford sold over 6.5 million cars in 2017 whereas Tesla delivered a little over 100,000 — which was a record for the electric-car company.
Market Cap: $156 billion
Alternative for: Coca-Cola
Pepsi is definitely less successful at selling soft drinks than its prime competitor and one of the most classic brands, Coca-Cola, but that might be leading to investors overlooking the company’s stock. Although best known for its leading beverage brand, PepsiCo is actually a snacking conglomerate, owning various packaged food and drink options including Lay’s and Ruffles potato chips and Quaker Foods.
PepsiCo raked in $4.9 billion in profits on $63.5 billion in revenue last year to Coke’s $1.2 billion profit on $35.4 billion in revenue, but Coca-Cola has a market cap of $188 billion to Pepsi’s $156 billion. Go figure.
Market Cap: $257.6 billion
Alternative for: Amazon
The future of retail is online and Amazon is leading that charge. As true as that might be, it might be leading a lot of people to overlook Walmart’s value.
Amazon is the more valuable company, with a market cap more than double that of Walmart at around $690 billion to Walmart’s just over $250 billion. But when you look at the numbers underneath that reality, Walmart had a net income of $13.6 billion on a whopping $485.9 billion in revenue in 2017, whereas Amazon managed just $3 billion in profits on $177.9 billion in revenue. According to those figures, Amazon is worth twice as much despite making about a quarter as much money.
Market Cap: $152.4 billion
Alternative for: Netflix
Much like Amazon, Netflix has a business model that’s proven disruptive to the market, and investors have poured in and reaped the rewards for their faith. When you consider that Netflix’s market cap is just over $125 billion whereas Disney’s is just over $150 billion, however, it might be worth thinking about playing the streaming media market a different way. Disney made over six times the profits of Netflix last year and over four times as much revenue and has plans to launch its own digital streaming service.
Market Cap: $113.1 billion
Alternative for: Boeing
The story of Boeing and General Electric in 2017 could hardly be more different. Boeing had the best returns of any company on the Dow Jones industrial average, whereas General Electric’s were the worst.
There’s nothing like shedding a third of your stock’s value to make the price look better, however: GE is offering twice the revenue per dollar invested than the high-flying Boeing.
Market Cap: $3.6 billion
Alternative for: Facebook
Facebook is the unquestioned king of the social media stock, raking in profits where companies like Twitter and Snap continue to struggle. With a P/S over 11, however, it might seem a little bit pricey to some. Restaurant review site Yelp might not offer the sort of scale Facebook does, but it’s certainly better priced for its income statement: Its P/S of 4.15 is less than half that of Facebook.
Market Cap: $186.1 billion
Alternative for: Salesforce
Oracle and Salesforce both operate in the same space, developing and selling different types of business software. Salesforce is a more recent addition, and Fortune’s top company to work for, but its P/S is over 8, almost double the 4.64 level where Oracle’s stock is trading.
Market Cap: $3 billion
Alternative for: Electronic Arts
Zynga and EA are both video game developers, with EA well-known for its various sports franchises and Zynga making games for phones, tablets and social media, including “Words with Friends” and “Farmville.”
EA is the more successful company by a wide margin, hauling in $4.8 billion in revenue in 2017 to Zynga’s $861.4 million. When you consider the price you’re paying, however, Zynga might be the better deal: Its P/S of 3.48 is not even half of EA’s 7.26.
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Market Cap: $183.8 billion
Alternative for: Apple
It’s a bit of a stretch to compare a carmaker to an electronics manufacturer, but if you think of them both as producers of big-ticket consumer goods products, Toyota could be a steal when comparing its relative price to Apple’s.
Toyota’s P/E of 8.38 and P/S of 0.67 are both very low, and although Apple is hardly high at 17.77 and 3.66 respectively, Toyota is clearly much cheaper at the moment.
Market Cap: $6.8 billion
Alternative for: Lululemon Athletica
Here’s a shocker: Lululemon costs more than Hanes. That’s true for apparel and stocks, as the upscale athletic wear brand Lululemon has investors paying $4.85 for every dollar of sales. For Hanes, that figure is just $1.05, less than a quarter of their swankier rival.
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Market Cap: $5.5 billion
Alternative for: Canada Goose
Canada Goose is a trendy maker of high-end warm weather clothes, and if you’re looking for a $500 hoodie, there might be no better place to look. Of course, if you’re not looking to spend too much, Columbia Sportswear might be a better option, both for coats and for stocks. Canada Goose has a P/E and P/S of 77.15 and 9.29, respectively, whereas Columbia Sportswear is just 53.16 and 2.25 in the same metrics.
Market Cap: $39.8 billion
Alternative for: Alibaba
It’s worth knowing that eBay is positively dwarfed by the Chinese e-retail site Alibaba, which has cleared more than $450 billion in market cap. That inflated value has pushed its P/S to 12.31, however, which could be pretty steep for some. Meanwhile, eBay is worth less than a tenth of what Alibaba is, and its P/S of 4.16 is worth just over a third of Alibaba’s.
Market Cap: $80.4 billion
Alternative for: Visa
American Express might be the card associated with the wealthy, but when it comes to its stock, it could be a cheap alternative to Visa. Visa investors are paying $14.16 for every dollar of company revenue whereas owners of American Express stock are only paying $2.64.
Market Cap: $26.2 billion
Alternative for: PayPal
PayPal fashions itself on the cutting edge of processing payments — and the markets tend to agree — with the company’s stock worth nearly twice as much today as it was at its 2015 initial public offering.
That success has also made PayPal a pricey buy, however. Meanwhile, Synchrony Financial — online banker and issuer of co-branded credit cards — offers over three-and-a-half times as many earnings for every dollar invested than the better-known PayPal.
Market Cap: $53.6 billion
Alternative for: Ferrari
In another example of two stocks comparing to each other in a similar fashion to the products they represent, General Motors offers a much cheaper alternative to Ferrari.
GM’s P/E of 5.91 and P/S of 0.36 both look like real bargains when compared to Ferrari’s 34.9 and 5.5.
Market Cap: $180.6 billion
Alternative for: JPMorgan Chase
Citigroup doesn’t have anywhere near the sort of history that JPMorgan does, whose namesake is a legendary financier who was one of the most noted industrialists of the Gilded Age.
But Citigroup is edging out its competitor when it comes to how much investors are paying for revenue. Citigroup investors are currently paying $2.81 for one dollar of revenue. That number’s $4.09 for JPMorgan.
Market Cap: $19.7 billion
Alternative for: Wynn Resorts
Stock in Wynn took a tumble after its founder and namesake was forced out amid accusations of sexual harassment, but it’s still pretty pricey when compared to MGM Resorts. Wynn’s stock is earning less than half as much profit per dollar of share price than MGM Resorts.
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Market Cap: $8.1 billion
Alternative for: Ross Stores
You might be doing a double take on the idea that Nordstrom represents a cheap alternative to Ross Dress for Less, but it does on the basis of P/S. Nordstrom is offering nearly $2 for every dollar spent on its stock, but Ross is about a quarter of that.
Market Cap: $29.1 billion
Alternative for: Pfizer
McKesson is a distributor of generic pharmaceuticals in addition to pharmacy solutions. Pfizer, one of the world’s best-known pharmaceutical companies, isn’t exactly expensive with a P/E of 10.19 and a P/S 4.06. But that’s still high when compared to McKesson, which has a P/E of just 6.2 and a P/S of a microscopic 0.14.
Royal Dutch Shell
Market Cap: $295.8 billion
Alternative for: Exxon Mobil Corp.
Exxon Mobil Corp. and Royal Dutch Shell are of comparable size and both offer a pretty reasonable price for their industry, but Royal Dutch Shell’s A-shares are still better than Exxon’s on value alone. Their P/S of 0.97 is a pretty good deal when compared to Exxon’s 1.34.
Market Cap: $97.3 billion
Alternative for: Charles Schwab
Goldman Sachs is one of the most notable investment banks out there, but that name recognition hasn’t driven its price beyond what’s reasonable for investment brokers. Goldman Sachs’ P/S of 3.03 is less than half that of Charles Schwab’s 8.04.
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Market data pulled from Yahoo! Finance and is accurate as of market close on April 6, 2018.
This article is produced for informational purposes only and is not a recommendation to buy or sell any securities. Investing comes with risk to loss of principal. Please always conduct your own research and consider your investment decisions carefully.
The author owns shares of Walmart.
Editorial Note: This content is not provided or commissioned by the bank advertiser. Opinions expressed here are author’s alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program.
About the Author
Joel Anderson is a business and finance writer with over a decade of experience writing about the wide world of finance. Based in Los Angeles, he specializes in writing about the financial markets, stocks, macroeconomic concepts and focuses on helping make complex financial concepts digestible for the retail investor.