It’s noteworthy that the S&P 500 has risen 28% since Oct. 3, 2011, working out to be a nearly 60% annualized gain. What’s even more notable is that almost all of the upside (outside of Apple (Nasdaq: AAPL)) has been in the riskiest end of the market, from heavily-shorted stocks that saw short covering, to stocks that already sported fairly high price-to-earnings (P/E) ratios.

If you’ve been focusing on safer stocks with lower P/Es, then you may feel like you missed out on the fun. These value stocks have simply not been in focus. But it would be foolhardy to shift gears now. After the very strong run for aggressive growth stocks, the valuation gap when compared with value stocks has rarely been this stark. That’s not to say that value stocks are suddenly poised to start appreciating much faster than growth stocks, but it does mean that they should at least hold their own in terms of upside, while offering significantly more downside protection.

I dug into more than 100 stocks in the S&P 500 that are trading for less than 10 times projected 2013 profits. I found three stocks that I think offer an especially compelling combination of low-risk and high-reward.

1. Goodyear Tire & Rubber (NYSE: GT)
Making tires is a straightforward business. When input prices (such as rubber) increase, you simply raise the prices that your customers pay. That’s why this tire maker’s gross profit margins hover around 17% every year.

The key factor is volume. When car and truck sales slump, demand for tires weakens and gross profits start to get eroded by overhead costs. Yet it works the other way as well. Rising volume could lead to outsized operating profits. That was surely the case for Goodyear in 2011 as a 20% jump in sales to $22.8 billion pushed operating profits from just $8 million in 2010 up to $618 million, or $1.91 a share. Although sales growth is now moderating, that leverage should remain in effect, so a modest jump in sales in 2013 should boost earnings north of $2.50 per share.

Trading at around $11 means this stock trades for less than five times projected 2013 profits. Analysts at Citigroup expect the stock to move up to $21, because “shares are meaningfully undervalued versus the company’s present/future earnings power and strong global franchise.” They expect Goodyear to garner hefty returns on its capital base: return on equity exceeded 70% in 2011, should top 50% this year, and exceed 40% in 2014. That high rate should help boost book value from $3.07 a share this year to $11 a share by 2014 (where the stock price sits now), according to Citigroup.

2. Hewlett-Packard (NYSE: HPQ)
There is no such thing as a quick turnaround. Any company that has been losing its focus for several years needs several quarters — or more — to get back on track. Yet investors are already losing patience with former eBay (Nasdaq: EBAY) CEO Meg Whitman, who was brought in last summer to lead a turnaround at Hewlett-Packard.

 
Investors had been hoping that Whitman’s first moves would quickly lead to improving results. So when she recently discussed her turnaround plans and the fact that they will modestly dampen profits in the near-term, investors were pretty disappointed, pushing shares down to below where they were when she first came in.

Yet her strategy looks quite sound, though. She intends to streamline operations by standardizing products, as well as optimize the supply chain and automate more production processes. She also plans to invest the resources to regain market leadership in some segments such as security and enterprisewide IT management. She won’t succeed on all fronts, but investors should be heartened by a management team that has a proven track record and a plan to play offense and not defense.

Even with modestly lowered 2012 and 2013 profit assumptions, this stock is still remarkably cheap, trading at less than eight times fiscal (October) 2012 profits and just seven times projected fiscal 2013 profits. This is still a business with a high degree of recurring revenue, thanks to long-term contracts, so those forward profit forecasts are unlikely to move much lower, even if Whitman’s plans are slow to impact results. Shares have likely found a floor in the low $20s and could easily move into the $30s as signs of the turnaround finally take shape.

3. Cliffs Natural Resources (NYSE: CLF)
It’s “back to basics” for this mining firm, which went on a recent acquisition spree that doubled sales in 2010 (to $4.7 billion) and boosted them another 45% in 2011 (to $6.8 billion). The broadened sales base (along with rising commodity prices) helped boost free cash flow from $37 million in 2009 to a whopping $1.3 billion in 2011.

But investors began to overlook this on fears of a rising debt load that now stands at $3.7 billion. Shares have fallen from $100 last summer to a recent $70. This helps explain why management recently met with analysts to announce a new strategy: Forget about more big acquisitions. Instead, look for rising dividends. Shares yield roughly 3.6% right now (after a nice recent boost), and could rise much higher, as the payout ratio now stands at just 27%.

Moreover, management aims to use the prodigious free cash flow to steadily pay down debt. The de-leveraging process should help boost the sagging P/E ratio as investors begin to value the company’s earnings more,. Right now, the stock trades for less than eight times projected 2012 profits (of $9.50 a share) and around six times projected 2013 profits (of $11.50 a share). That’s among the lowest forward P/E ratios in the S&P 500.

Risks to Consider: Each of these companies will need at least a slowly improving economy to hit their targets. This appears to be happening, though the economy slipped back last summer after showing similar signs of growth in the early spring.

Action to Take –> The low P/E ratios tell you these stocks are out of favor. Yet they will really start to pop up on investors’ radars if and when sentiment shifts into a less bullish mode and value stocks move into focus. Any of these three stocks are good buys in anticipation of that happening.