3 Dirt Cheap Stocks to Buy With $1,000 Right Now

Key Points

• Alphabet is by far the cheapest "Magnificent Seven" stock.

• Realty Income trades at an attractive value compared to other REITs.

• Energy Transfer fetches one of the lowest valuations in the energy midstream sector.

• 10 stocks we like better than Alphabet ›

The S&P 500 has continued to rally this year. It's up about 10% year to date and almost 20% over the past 12 months. That has the market trading at an elevated valuation of about 22 times forward earnings. The only other times it has been this high in the last quarter century are right before the dot-com bust and shortly after the pandemic.

While most stocks currently trade at high valuations (especially the "Magnificent Seven"), there are some bargains out there. Here are three dirt cheap stocks worth investing $1,000 into right now.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

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Alphabet: The cheapest Mag 7 stock

A big driver of the stock market's rally has been the strong returns of the Magnificent Seven tech titans. They've grown significantly in value and currently make up more than 35% of the S&P 500's market cap. The Magnificent Seven collectively trade at nearly 30 times forward earnings, and are a big factor driving the index's elevated valuation.

However, Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) stands out from the rest of the Magnificent Seven. The search giant currently trades at slightly more than 20 times its forward earnings, which is a discount not only compared to the group's average of nearly 30 times, but also slightly below the S&P 500's average of about 22 times forward earnings. The lower valuation is due to investor concerns that artificial intelligence (AI) will eat into its lucrative search business.

Those concerns seem to be overblown. Google search revenue rose nearly 12% in the second quarter to over $54 billion. AI has been a tailwind, not a headwind, for this business. CEO Sundar Pichai noted in the second-quarter earnings press release that:

We are leading at the frontier of AI and shipping at an incredible pace. AI is positively impacting every part of the business, driving strong momentum. Search delivered double-digit revenue growth, and our new features, like AI Overviews and AI Mode, are performing well.

The company also saw robust growth in Google Cloud (up 32%), driven in part by AI infrastructure and generative AI solutions.

Alphabet's strong AI growth drivers and attractive valuation make it stand out these days.

Realty Income: A consistent performer with multiple upside catalysts

Realty Income (NYSE: O) knows how to create shareholder value. The real estate investment trust (REIT) has delivered above-average total operational returns (dividend yield plus FFO- per-share growth) over the past one-, three-, and five-year periods. Despite this track record, Realty Income currently trades at a much lower earnings multiple (13) compared to its peer group average of 18. That lower valuation relative to peers contributes to Realty Income's high dividend yield (over 5.5%).

Several catalysts could boost the REIT's valuation in the coming years. Interest rates, which have been a headwind in recent years, could become a tailwind as they fall. Lower rates would help lower Realty Income's funding costs while also making its higher-yielding dividend more attractive to income-seeking investors.

Additionally, there's a massive and growing need for retirement income as more people retire in the coming years. That will likely make Realty Income a more attractive investment option for a broader audience.

Finally, the company is starting to tap into the massive private capital market by launching a private fund. This strategy should generate management fee income and higher investment returns. It could also boost its valuation as the market starts seeing Realty Income as more of an asset manager (which investors value more highly).

Energy Transfer: High-octane total return potential

Energy Transfer (NYSE: ET) is one of the largest and most diversified energy midstream companies. The master limited partnership (MLP) has been growing earnings at a 10% compound annual rate over the past five years and is in its strongest financial position ever. Despite these positives, Energy Transfer currently trades at the second-lowest valuation in its peer group -- less than 9 times earnings compared to the peer average of 12 times. This lower relative valuation helps explain its high distribution yield (over 7.5%).

The MLP has a lot of growth still ahead. It's investing $5 billion into growth capital projects this year, which should boost its financial results in 2026 and 2027 as they enter service. Meanwhile, it recently significantly enhanced and extended its growth outlook by securing several new expansion projects. They include the massive $5.3 billion Desert Southwest Expansion project that should enter commercial service by the end of the decade.

Energy Transfer has more growth ahead. It's close to finally approving its Lake Charles LNG export terminal. It's also working on several projects to supply gas to AI data centers and power plants. Additionally, the company has ample financial capacity to make acquisitions as opportunities arise. Energy Transfer's combination of yield, growth, and low valuation positions it to potentially produce high-octane total returns in the coming years. The MLP also offers potential tax benefits by sending investors a Schedule K-1 federal tax form each year.

Smart stocks to invest in these days

While the stock market is getting more expensive as it continues to rise, several stocks are still pretty cheap. Alphabet, Realty Income, and Energy Transfer currently stand out as some of the cheapest stocks to buy these days. They could turn a $1,000 investment into a much bigger future payday.

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Matt DiLallo has positions in Alphabet, Energy Transfer, and Realty Income. The Motley Fool has positions in and recommends Alphabet and Realty Income. The Motley Fool has a disclosure policy.