3 More Outrageously Cheap Stocks

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Yes, the stock market has been on an incredible upward tear, but there has also been a lot of volatility and a lot of stocks left behind. Are there any out there that are outrageously cheap?

I got to thinking about this the other day when I was talking to an investor who was bragging about how much money he'd made on AIG (NYSE: AIG) and GE (NYSE: GE) since February. He was particularly proud because these were stocks I'd specifically told him not to buy (too complicated, was my reasoning). But he thought they were outrageously cheap, and now they're up more than 100% each in a matter of months.

That said, the whole market is up, and given wary financial markets and weak jobs data, it should be clear that not all stocks that look cheap are cheap.

However, there are some individual stocks today that, for one reason or another, present "good value" and are less complicated than AIG and GE -- but still remain outrageously cheap.

Back up the truck, people
What makes for an outrageously cheap stock? Here's my short list:

1. A balance sheet with lots of cash and little debt.
2. An EV/EBITDA ratio less than 6. (That's enterprise value/earnings before interest, taxes, depreciation, and amortization.)
3. A business with the financial strength and strategy to survive and thrive in a down economy.
4. No potential for massive writedowns.

Now, there are only a handful of large or mid caps that meet those criteria, so if you really want to build an "outrageously cheap" portfolio, you may need to start thinking of yourself as a small-cap investor.

Welcome to the jungle
In truth, large caps such as Intel (Nasdaq: INTC) attract far too much investor attention to ever become really inefficiently priced. That $109 billion tech giant is tracked by 51 sell-side analysts.

You generally won't find as much interest among small caps, which is one of the reasons why -- given the criteria above – Ituran (Nasdaq: ITRN), Dress Barn (Nasdaq: DBRN), and HQ Sustainable Maritime Industries (AMEX: HQS) look outrageously cheap.

Company	EV/EBITDA	Net Cash on Hand	Investors Scared Because ...
Ituran	5.3	$39 million	Tied to auto sector spending.
Dress Barn	5.5	$212 million	Weak outlook for U.S. consumer discretionary spending.
HQ Sustainable	3.4	$58 million	Food safety issues in China.

Data from Capital IQ, a division of Standard and Poor's.

Yes, that last subhead was a Guns N' Roses reference
The reason we love being small-cap investors at Motley Fool Hidden Gems is because it's the one area of the market where, thanks to inefficiencies and lack of Wall Street interest, stocks can become outrageously cheap. And there's good reason to think that things will get better for all three of these stocks. Of course, in a down market like this one, that lack of efficiency can make for some gut-wrenching downside volatility.

But we're using current market conditions to recommend the market's best small companies -- stocks that should crush the market averages over the next decade or more.

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This article was first published on March 14, 2008. It has been updated.

Tim Hanson does not own shares of any company mentioned. Intel is a Motley Fool Inside Value recommendation. The Fool's disclosure policy is decidedly un-outrageous.