Top-Rated Stocks in the Bargain Bin

Everyone loves a bargain. Be it at the grocery store, the flea market, or the car dealership, people inherently understand the benefits of getting a great deal.

Yet despite this infatuation with bargain opportunities, it doesn't occur to many investors that buying cheap stocks is possibly the best way to squeeze a whole lot of bang out of a hard-earned buck. As Warren Buffett says, "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."

Our penny-pinching process
So, with the help of our community over at Motley Fool CAPS, I'll once again try to find some cheap stocks for all of my kindred stingy spirits.

The approach is far from complicated: We'll run a simple screen for four- or five-star stocks (out of five) with enterprise value-to-EBITDA (EV/EBITDA) ratios below 10.

Dive in the bargain bin
By running this screen, we'll zero in on statistical bargains that, according to our CAPS community, have plenty of great reasons to trade at much higher levels.

Let's dive right into this week's bargain bin:

Company

EV / EBITDA
(Trailing 12 Months)

Industry

CAPS Rating
(out of 5)

Flowers Foods (NYSE: FLO  )

8.7

Packaged foods and meats

*****

NYSE Euronext (NYSE: NYX  )

8.9

Specialized finance

****

Harbin Electric (Nasdaq: HRBN  )

6.6

Industrial electrical equipment

****

Data provided by Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

As usual, our list isn't exactly brimming with the most exhilarating businesses. But that should be just fine with us. As sharp Fools know well, boring stories often translate into the market's best risk-adjusted returns.

For starters, Flowers Foods, NYSE Euronext, and Harbin Electric look like three stocks worth considering.

Flower power
Shares of Flowers Foods have performed relatively well over the past few years of market madness, reflecting just how well the business has been holding up. Despite rising commodity costs and intense competition from rivals Sara Lee (NYSE: SLE  ) and Campbell Soup (NYSE: CPB  ) , Flowers' low-cost operations have earned it near-20% returns on equity in each of the past two years. With management recently upping its dividend by 14% and continuously looking to buy back shares, Flowers seems like a shareholder-friendly opportunity.

CAPS All-Star dvcnut helps Fools focus on the fundamentals:

Except for a small hit in 2009, margins and ROE have been growing the past few years. The company expects EPS growth of 10%-15% in 2010, and has had double-digit dividend increases for the past 5 years. They also have good growth prospects as they're mostly located in the south so can continue growing throughout the rest of the country. 

Gift exchange
With trading volumes surprisingly strong of late, stock exchange operators like NYSE Euronext and Nasdaq (Nasdaq: NDAQ  ) might be worth looking into. NYSE Euronext, in particular, saw its European derivatives trading volume rise 51.5% in May, while its U.S. equity options surged 90.3%. As derivatives regulation comes closer and closer to becoming cemented, those positive trends seem like reasonable bets to continue.

CAPS member FitzColinGerald sums up the bull case:

NYSE Euronext serves as a marketplace for the trading of various financial securities. As the world's largest stock exchange by market capitalization of its listed companies, the NYSE has expanded into ETFs, derivatives, options, futures, and bonds. Such expansion demonstrates diversity in the company's business model, which will provide it with steady earnings growth over the long term.

Broken motor
Chinese small-cap stocks are notorious for getting punished during market corrections, and Harbin Electric is no exception. With giants like General Electric and Emerson Electric listed as rivals, it's no surprise that the little electric-motor maker is down 20% over the past two months. Of course, with an almost unbelievable PEG of 0.27, Harbin also looks like an ultracheap way to get some growth into your portfolio.

CAPS All-Star Beorn10 elaborates:

China's industrialization and Asia as a whole has revolved around the production of products of value, which can be exported. Specialized motors are a critical part of this economy, which will likely grow as the regional production expands. The recent sell off in the Asian markets have created a good buying opportunity for some of these critical companies.

A 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 ideas that you might find worth further research. If you'd like to scour the bargain bin for yourself, read what our CAPS community thinks, or even chime in with your own opinions, click here to get in the game.

Oh, and it's totally free -- an offer that even the deepest of value investors should never pass up.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. NYSE Euronext is a Motley Fool Rule Breakers recommendation. Nasdaq is a choice of Inside Value, and Motley Fool Options has recommended writing covered calls on it. The Fool's disclosure policy always pays the full price for transparency.


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