5 Frugal 5-Star Stocks

Buying stocks for significantly less than their true worth is the method that investors such as Christopher Browne, Eddie Lampert, Joel Greenblatt, and Warren Buffett have used in establishing their legendary status.

Of course, the tricky part of this approach is being able to tell the difference between authentic value and a value trap -- something that the aforementioned masters have, well, mastered!

Our penny-pinching process
So in that spirit, and with the help of our community over at Motley Fool CAPS, I'll once again be looking to separate the valuable wheat from the worthless chaff. The approach is far from complicated: I'll run a simple screen for five-star stocks (the highest rating a stock can get in CAPS) that have enterprise value-to-EBITDA (EV/EBITDA) multiples below 10. I'll be using EV/EBITDA rather than the more common price-to-earnings ratio, so that we can account for differences in each company's capital structure.

In other words, you won't be finding high-profile, high-multiple growth stories like Google and Starbucks as part of the Frugal 5 anytime soon.

Meet the Frugals
Instead, by running this screen, we'll zero in on statistically cheap stocks that, according to our CAPS community, have plenty of great reasons to trade at much higher levels. So without further ado, here is this week's list of Frugal 5-Stars:

Company	EV/EBITDA (ttm)	Caps Bulls	Caps Bears
Sauer-Danfoss (NYSE: SHS  )	9.1	18	0
Delta Apparel (AMEX: DLA  )	6.6	23	2
Century Aluminum (Nasdaq: CENX  )	6.4	58	3
Gibraltar Industries (Nasdaq: ROCK  )	6.3	16	4
Norsk Hydro (NYSE: NHY  )	3.1	113	2

As always, our family of Frugals is dominated by relatively unknown companies domiciled in some sector snoozers. This week's list is comprised of machinery producer, an apparel manufacturer, an aluminum producer, a provider of steel products, and an international energy firm, respectively.

Not exactly the wildest bunch of businesses, are they?

That's OK. Here's a quick summary of two particularly interesting Frugals -- Century Aluminum and Gibraltar Industries -- as well as what some of our CAPS players are saying about them. Some of the bullish arguments might just keep you from dozing off.

Deal of the century
My favorite stock on this week's list is Century Aluminum, a U.S.-based producer of (wait for it ...) aluminum. Although the company competes against aluminum powerhouses such as Alcoa (NYSE: AA  ) , Alcan (NYSE: AL  ) , and foreign multinational Aluminum Corporation of China, just to name a few, the much smaller Century Aluminum is steadily gaining some promising size efficiencies akin to its gargantuan rivals.

Century has taken several initiatives to increase production capacity, the most important of which involves the expansion of its Nordural facility in Iceland. As of last October, plans to boost the facility's production from 90,000 to 220,000 metric tons per year were nicely ahead of schedule, with management expecting production levels to reach 270,000 tons by 2008.

Also, to soften Century's above-average exposure to aluminum price volatility -- which is the result of its small size and lack of scale -- management has taken the steps to acquire raw-material assets such as its 50% stake in a bauxtile company in Jamaica.

So, when you combine Nordural's extra capacity, improving cost structure, small-cap size, and frugal price ratio with favorable economic conditions in places like China and Russia, Century's shares look like a fairly potent way to profit from the increasing global appetite for aluminum. mars220 is just one of several CAPS residents who has nothing but shiny things to say about Century's outlook:

"Energy-efficient producer of aluminum -- in an environment and industry where energy costs are at all-time high. Low P/E and has a way to go to meet 52-week high."

Frugal rock
Another stock that our CAPS community frugally favors is Gibraltar Industries, a producer of primary metals for various industries. Just recently, the Buffalo-headquartered company stated that its fourth-quarter results would not be as strong as previously expected, because of softness in the housing and automotive markets. However, despite those warnings, I remain cautiously optimistic about Gibraltar's prospects.

Even with management's lowered guidance, Gibraltar still expects to report record sales and operating earnings for fiscal 2006, capping off yet another year of impressive growth. Also, the widely diversified conglomerate continues to be well-entrenched in several market niches within its two main businesses: building products and processed metal products. For example, Gibraltar is North America's largest manufacturer of mailboxes and ventilation products.

Despite those market-leading statistics, Gibraltar remains a relatively underfollowed company because of its several moving parts. However, with Gibraltar's recent inclusion into the S&P small-cap 600 index, and the fact that management continues to do a good job of extracting efficiencies from its operations, there's good reason to believe this rock is solid enough to withstand any short-term industry slowdowns. CAPS All-Star dwott believes Gibraltar will get the proper exposure to market elements that it deserves:

"Moving to the S&P, no doubt it will get a bit more attention and it has a lower P/E than most."

Fool's final word
As always, what we say here isn't meant to be taken as a formal recommendation; we want only to generate some possible ideas that you might find worth further research. If you'd like to search for Frugals of your own, read what our CAPS community thinks, or even chime in with your own opinions; click here to get in the game.

That's all for this week, Fools. Be sure to join me next week when I'll highlight another batch of Frugals for your perusal. Until then, keep sniffing out those bargains -- just stay away from the trash.

Fool contributor Brian Pacampara had a pet rock named Rocko (really, he did!) and holds no position in any of the companies mentioned. Norsk Hydro is a Motley Fool Income Investor choice. The Fool's disclosure policy always pays the proper price for doing business.