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3 Insanely Cheap Stocks We're Buying Today

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Rocked by concerns about the U.S. economy, instability in the European financial system, and a flight to safety in the wake of Standard & Poor's downgrade of U.S. debt, the market has fallen by about 10% in just the past month, even with its mild rebound of the last few days.

At times like these, it's important for us to remember the timeless advice of billionaire investor Warren Buffett:

I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.

Savvy investors, with the stomach to buy after market sell-offs, stand to benefit from wealth-creating opportunities such as these.

If you're looking for great stocks to buy today, you could do worse than to buy top-notch blue chip stocks that got whacked during the sell-off.

But let's remember: "High quality" names like Akamai (Nasdaq: AKAM  ) and Teva Pharmaceuticals (Nasdaq: TEVA  ) weren't the top performers coming out of the March 2009 market low. Both continued to see strong growth (though Akamai's web traffic volume is now slowing somewhat), but because their stock prices didn't reflect the market's depths, they had less room to run.

In fact, the market's cheapest quintile returned 280% -- more than double the others' average. Supposed value traps among the cheapest group that investors left for dead, such as American Capital Agency (Nasdaq: AGNC  ) and Linn Energy (Nasdaq: LINE, came roaring back once the market realized that creditors hadn't lost confidence in mortgage REITs like American Capital, and that Linn had locked in favorable long-term pricing.

Here are the insanely cheap stocks I'm buying for the real-money Dada portfolio I co-manage:


5-Year Trailing Earnings-per-share growth Rate

5-Year Estimated Earnings-per-share growth Rate

Price-to-Earnings Ratio

Ebix (Nasdaq: EBIX  ) 61% 17% 10.5
Supervalu (NYSE: SVU  ) (13%) 5% 3.1*
Yongye (Nasdaq: YONG  ) 40%** 10% 4.1
Median S&P 500 7.7% 11.2% 15.1

Data from Capital IQ, a division of Standard & Poor's.
*Price-to-free cash flow ratio.
**3-year growth.

Of course, when individual stocks get this cheap, there's often a reason for it. Here's what you need to know about these stocks, and why investors are down on them:

Ebix provides EbixExchange, a software hub for data exchange that allows insurers and brokers to get quotes, check ratings and financials, monitor costs, manage benefits, and so forth. It's a great business to dominate, because there are network effects to such exchanges, since more members make the data more valuable. Ebix's software, which is available on a subscription basis, provides it with recurring revenue with an excellent retention rate. That generates lots of free cash flow, which Ebix uses to buy up smaller competitors and, more recently, its undervalued stock. The company's CEO, who already owns a major stake in the company, recently bought a chunk of shares a little above today's prices.

Part of the reason for Ebix's cheap stock relative to its past growth and future prospects is that the company is a favored target of skeptics and short sellers, who are concerned about the company's internal controls, specifically alleging that it overstates organic growth, uses its acquisition strategy to hide weakness, and has an eccentric CEO. The company has hired Ernst & Young to help it address some of these issues.

Ebix has a history of topping analyst growth estimates. Assuming the numbers are real, it's a strong company trading at a cheap price.

Yongye produces Shengmingsu, an organic fertilizer that Chinese farmers use, along with other fertilizers to improve the health and yield of their produce. Given its lack of arable land, food scarcity is a major problem in the world's most populous nation, and boosting food production -- especially organically -- is a major policy imperative.

Chinese small caps have gotten crushed over the past couple of years, as investors and short-sellers have become skeptical that they can trust anyone in the Chinese market. In particular, bloggers have attacked the veracity of Yongye's management team and the efficacy of Shengmingsu. But if its numbers are real, Yongye could be a strong performer.

The Motley Fool's Global Gains team has visited the company to check out the products. Also, after conducting its due diligence, Morgan Stanley invested $50 million in the company, albeit with a few strings attached to protect its investment, and took a seat on the board. Yongye's CEO also promised to buy $3 million worth of the company's shares.

SUPERVALU runs several chains of grocery and drug stores, including Save-A-Lot and Jewel-Osco. As its name suggests, it focuses on providing customers with value and affordability.

SUPERVALU's bane is its heavy debt load and the difficult economy. The company sports a nearly 5-to-1 debt-to-equity ratio. Over half of its operating earnings go toward just paying off the interest on its debt. And business is tough; same-store sales were off almost 4% last quarter.

But the company's experienced management team is responding by reducing administrative expenses, closing underperforming stores, and deleveraging. The company expects to save $115 million on costs in 2011. Debt was down $722 million over the past year, which saved $19 million in interest payments last quarter. These efforts should help whittle down SUPERVALU's debt and cushion the economy's blow. The stock is cheap enough that earnings could shrink quite a bit and we'd still make money.

The Dada portfolio will be buying these three stocks because we like their enormous potential upside. If you're looking for more stock ideas – be they undervalued high-quality stocks or spicier ones with tremendous upside -- click here to see "5 Stocks The Motley Fool Owns -- And You Should Too."

Ilan Moscovitz owns shares of Ebix and Yongye. You can follow him on Twitter, where he goes by @TMFDada. The Motley Fool owns shares of Ebix, Yongye International, and Supervalu. Motley Fool newsletter services have recommended buying shares of Ebix and Yongye International. Motley Fool newsletter services have recommended buying calls in Supervalu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (20) | Recommend This Article (75)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 15, 2011, at 4:50 PM, randydutch wrote:

    Genius. You have another article today advising to sell Yongye.

  • Report this Comment On August 15, 2011, at 5:02 PM, TMFDiogenes wrote:

    TMF writers are allowed to have differing opinions. It's what makes us motley. Feel free to read the analyses and decide what you think.


  • Report this Comment On August 15, 2011, at 5:19 PM, mikecart1 wrote:

    randydutch LOL. I've always said to succeed anywhere in life where those before fail is consistency. Whether that be building muscle, getting a PhD, or making mad money. They all require 1 simple and yet 1 very hard characteristic - consistency. All 3 are quite simple actually. However, I find very little consistency among Motley Fool. Hmm....

  • Report this Comment On August 15, 2011, at 5:31 PM, mryansmith37 wrote:

    Do your due diligence.

    EBIX:"Assuming the numbers are real, it's a strong company trading at a cheap price."

    YONG: "But if its numbers are real, Yongye could be a strong performer."

  • Report this Comment On August 15, 2011, at 5:46 PM, Lygus wrote:

    Don't buy any company based on the fact it produces " organic " fertilizer especially In China. China has to feed what is it a billion people. You can't do that with organic fertilizer. The plant can only take up nitrogen to produce proteins in two forms NO3 and ammonium it does not make any difference to the plant if it comes from cow or chicken manure or so called chemical fertilizers. But chemical fertilizers are roughly one fifth the cost of there organic competitors it's about production and cost per unit of usable nitrogen especially for an emerging agricultural country like China. Also natural gas is cheap and they are the feed stocks for these fertilizers.

  • Report this Comment On August 15, 2011, at 5:49 PM, bretco wrote:

    some pretty big assumptions and you know what they say about assume..........

    You make an "ass outta U and me"

    fool on, Fools !

    Anyone remember one of Motley's favorites,

    CrispyKreme ?

    Made some pretty bad assumptions on that one thatr cost me a lot of money. not the first though.

  • Report this Comment On August 15, 2011, at 6:04 PM, wolfhounds wrote:

    I have been leary, as others above, of the repeated recommendations of EBIX and YONG with all the caveats attached. There are better batted stocks out there to buy, like uhmmm, TEVA or JCI. They don't have auditors coming in to see what the hell is going on.

  • Report this Comment On August 15, 2011, at 6:41 PM, Notfooled1 wrote:


  • Report this Comment On August 15, 2011, at 6:42 PM, Notfooled1 wrote:

    The Motley Fools are like touts. One picks a stock to be a winner and another picks it to be a loser. That way one of them is correct and only the suckers suffer. Don't be fooled!

  • Report this Comment On August 15, 2011, at 6:56 PM, TMFDiogenes wrote:

    You can find our record on the left-hand side of 8 of 9 services are beating the market, some substantially so.


  • Report this Comment On August 15, 2011, at 7:08 PM, ctconyers wrote:

    This article convinced me I really am a yield investor.

  • Report this Comment On August 15, 2011, at 9:41 PM, rambotrader wrote:

    Yangye is a Chinese company and not only have I been scammed by Chinese companies in the past but so have some of the largest companies in the world. Great when you buy shares and have a Chinese Board which is of the opinion that it owns the company.

    Chinese like to attract large amounts of capital but appear reluctant to let the owners expatriate profits.

    No thanks guys.

  • Report this Comment On August 16, 2011, at 10:30 AM, Radaaahs wrote:

    Fool forgot to mention following with EBIX;

    class action lawsuit has been filed in the United States District Court for the Southern District of New York on behalf of those who purchased securities of Ebix, Inc. ("Ebix" or the "Company") (Nasdaq:EBIX) between May 6, 2009, and June 30, 2011 (the "Class Period").

    The lawsuit alleges that Defendants portrayed the Company as a fast-growing leader in its industry, with rapidly increasing revenues and net income, a favorable tax position, and rapid and profitable acquisitions. As a result, the complaint alleges, Ebix securities traded at artificially inflated prices throughout the class period

  • Report this Comment On August 16, 2011, at 12:27 PM, AaronRogers wrote:

    That lawsuit is a joke. Its about an old employee believing that their performance (PEAK acquisition) warranted an allotment of more money. Very cut and dry on this lawsuit. Peak didn't achieve the results warranting extra payment however, even if they did, the cost to shareholders is minimal not even a blip on the income or cash flow statement should EBIX lose. More over, the lawfirms are struggling to even get a lead plaintiff on behalf of shareholders to file based on the presumption that the lawsuit is true. Hilariously, the loss of share value that holders would be suing for based on the possibility that the PEAK lawsuit is true was less than the loss to share holder value resulting from the headlines of a possible lawsuit by share holders. Typical cut nose to spite face. The lawyers want to get paid and the drama has made the true motivations of those perpetuating (lawyers) apparent.

  • Report this Comment On August 16, 2011, at 1:45 PM, Ragingmoose wrote:

    We, Canadians up north we've been fooled by Sino Forest. There are class actions and other lawsuit against the chineese company.

    So I consider Yongye and Sina as SPECULATIVE BET rather than investments, like any chineese venture. We friendly follow you on the Afganistan front, we want follow our american fellows on chineese bouby traps !

    Be carefull !

  • Report this Comment On August 16, 2011, at 1:57 PM, cartab wrote:

    I know we all want to come out ahead in this roller coaster market but can't we try to invest in America?

    That's part of our problem now!!

  • Report this Comment On August 16, 2011, at 7:44 PM, racchole wrote:

    It is very amusing that people come on these message boards to point out the fact that Motlet Fool writers contradict themselves. I would be very surprised someone as misinformed as these hecklers could even stand a chance to be intelligent investors.

    TMFDiogenes - I appreciate your ability to find stocks I would never know existed when you haev to dig deep in your pockets to find ideas for articles. You guys do a great job.

  • Report this Comment On August 16, 2011, at 7:53 PM, TruffelPig wrote:

    YONG is a very questionable recommendation. There are too many secrets in the quarterlies.

  • Report this Comment On August 20, 2011, at 5:09 PM, dantebui wrote:

    Yong? I don't think so. Buy POT is you want to play fertilizer, not a Chinese company you don't know anything about. Very QUESTIONABLE recommendation. The fools also recommended AOB, look at how that pick has done. TERRIBLE.

  • Report this Comment On August 21, 2011, at 8:22 AM, skypilot2005 wrote:

    "SUPERVALU's bane is its heavy debt load and the difficult economy. The company sports a nearly 5-to-1 debt-to-equity ratio. Over half of its operating earnings go toward just paying off the interest on its debt. And business is tough; same-store sales were off almost 4% last quarter."

    They are in a very competitive industry. ie.: Walmart, Regional privately owned Meijer, etc.

    I don't know about this one.

    I don't see a clear competitive advantage.

    Sky Pilot

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