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Low Seeds, High Ceilings

This one goes to 11
By now, you know that the name George Mason, the colonial patriot, is most closely associated these days with a Fairfax, Va., commuter college. The men's basketball team there went all the way to the Final Four, after all. Not since LSU in 1986 has an 11th-seeded team advanced so far.

Now you want to know what the heck this has to do with investing, right? I'll tell you. I consider Mason the ultimate value stock.

What's a value stock? For me, it's a lot like George Mason: little or no hype, low expectations, and a foggy track record, yet excellent fundamentals. It was a ruthless combination of low expectations and skilled play that beset George Mason's opponents in the tournament, and that same combination had the Patriots breathing the rarefied air of the Final Four.

Upsets in the making?
Naturally, I wondered whether there was a way to find similar upsets among the thousands of teams participating in the ongoing tournament of capitalism that we call the stock market. So I screened for low P/E and operating cash flow multiples (i.e., low expectations) and double-digit sales growth (i.e., strong fundamentals). I then tossed in insider buying to see whether the coaching staff (i.e., management) was as committed as the players (i.e., shareholders). Here's what came up:



TTM Price/

Sales Growth

Insider Buying

American Eagle Outfitters (Nasdaq: AEOS  )




1 mil shares

Chesapeake Energy




2.5 mil shares

Cost Plus (Nasdaq: CPWM  )




1.2 mil shares

(NYSE: OO  )




1.3 mil shares

Sources: Yahoo! Finance, Fidelity Investments

American Eagle Outfitters, which has been buffeted by weak-kneed expectations among analysts, could prove to be cheap if its concept aimed at mid-30s men takes off. There's also a lot to like about its new compensation plan.

Chesapeake Energy, which I've profiled in the digital pages of my weekly column on insider buying, remains an interesting stock, unless you believe that there's no floor to natural gas prices. I don't.

Cost Plus, on the other hand, appears to me as the runt of this litter. Same-store sales are declining, and a first-quarter net loss is forecast. Betting on a turnaround isn't out of the question, of course. But better buy-in prices likely await the patient Fool.

Oakley, another stock I've profiled for insider purchasing by founder James Jannard, may be more expensive, but it also has a wide array of appealing products, from new high-tech specs it built with help from Motorola (NYSE: MOT  ) to a new women's line, introduced recently.

Invest with a winner
Screening for the stock market's best low seeds is pretty simple, but remember that many low seeds don't pull off big upsets. Be sure to do the required homework of reading financial statements and business strategies in order to put market-crushing values in your portfolio's future.

But if you'd like help, let me introduce you to Philip Durell, our coach at Motley Fool Inside Value. His value-driven approach has beaten the market by nearly 4% as of this writing. And his clinics on valuation remain some of my favorite Foolish reading material.

If that sounds enticing, I've got good news: Philip is offering free front-row seats to Inside Value for the next 30 days. All of his picks, teachings, special reports, and even the customized discount cash flow calculator will be yours to learn from, risk-free. Click here to get started right away.

Fool contributor Tim Beyers likes a good bargain as much as the next Fool does. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what else is in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.

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