Smart value investors constantly search for stocks that offer huge bargainsto prospective shareholders. Even after a huge rally that has lifted stock prices well off their lows, you can still find stocks trading at fairly attractive prices.

However, any time you make investment decisions based on valuations, you have to be careful. If you throw out stocks that look too expensive by simple measures of value, then you may miss out on companies whose future growth prospects justify an earnings multiple well above what you'd expect from less promising stocks.

Conversely, given how much the recession has dampened investors' appetite for stocks, you can find some stocks trading at ridiculously low P/E ratios. But if those earnings multiples are based on past earnings that the company is unlikely to meet again in the near future, then you could be in for a big surprise when you see earnings drop, making what seemed a bargain appear much more expensive.

What the future holds
Low P/E ratios shouldn't automatically make you salivate over a stock. Bear in mind that the vast majority of investors aren't stupid, so there's almost always a good reason share prices are as low as they are. After you take a closer look, you may find out what that reason is -- and it may save you from making a huge investing mistake.

For instance, the following stocks trade at relatively low P/E ratios that certainly look attractive at first glance. But when you look at how Wall Street expects those companies to perform in the future, you'll notice that their earnings will probably fall-- in some cases dramatically -- pushing forward P/E ratios much higher than the current trailing P/E:

Stock

Current Trailing P/E

Projected Forward P/E

Cardinal Health (NYSE: CAH)

9.0

13.4

Discover Financial Services (NYSE: DFS)

5.6

20.1

Sunoco (NYSE: SUN)

5.4

11.8

U.S. Steel (NYSE: X)

13.6 Continued...