5 More Frugal 5-Star Stocks

Everyone loves a bargain. Be it at the grocery store, the local flea market, or at the neighborhood 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 also a great way to squeeze a whole lot of bang out of a hard-earned buck. It's probably even the best way.

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 for some attractive value stocks. 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 of less than 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.

Meet the Frugals
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 five-stars:

As always, our family of Frugals is dominated by relatively unknown companies domiciled in some boring industries. This week's list is composed of a management consulting firm, a railroad company, an oilfield-equipment provider, a specialty metals distributor, and an apparel retailer, respectively.

Not exactly the most stimulating bunch of businesses, are they?

That's OK. Here's a quick summary of two particularly interesting Frugals -- Norfolk Southern and Grant Prideco -- 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.

All aboard a bargain?
My favorite stock on this week's list is Norfolk Southern, a Virginia-based railroad company operating across 21,000 route miles -- primarily in the eastern U.S. and in Ontario. Although the railroad business is notoriously fraught with obstacles, Norfolk Southern has used inventive technology and joint ventures to become one of the most efficient and reliable operators in the country.

Most recently, Norfolk grew net income by 38% for the third quarter, while railway operating revenues climbed 11%. The sentiment in our CAPS community is that those numbers are a sign of more good things to come, as higher energy prices, struggles in the trucking industry, and rising international trade will serve Norfolk's extensive network well for the next few years.

In addition, many members are attracted to Norfolk's valuation. This best-of-breed railroad company appears to be trading at a reasonable discount to several industry peers. CAPS All-Star dmbeach, for example, utilizes the proven PEG ratio -- one of Peter Lynch's favorites -- to come up with a cheap conclusion:

"Fairly cheap, with PEG below 1, and pays an OK dividend. ... Solid management; they literally keep the trains running on time. On the down side, sports some leverage (D/E [debt-to-equity]ratio of 0.69), but of course that will be good if the growth projections pan out."

Drill bits for sale
Another stock that our CAPS community frugally favors is Grant Prideco, a provider of oilfield equipment to the oil and gas industry. The Houston-based company says it is the world's leader in drill-stem technology and drill-pipe manufacturing. Naturally, Prideco has witnessed a surge in demand for its technology during the past few years, as drillers have ramped up their capital spending to optimize production.

In late October, third-quarter earnings grew 83%, while revenue climbed 34% from the previous year. The company expects another set of record results in Q4, as business in the drilling-products segment -- which accounts for about 45% of Prideco's revenue -- continues to experience significant growth. Obviously, we should always take a management team's rosy projections with a healthy dose of skepticism, but many in our CAPS community also believe that the earnings trend is likely to continue.

The general consensus is that high levels of depletion, an increased demand for low-cost drilling solutions, and an attractive valuation make the stock a timely investment candidate. CAPS participant prose976, for example, is one CAPS All-Star who believes Prideco drills right to the heart of value:

"Black gold, high return on equity, high projected growth, has a long bright future, a strong balance sheet, [and is] a bargain at these prices."

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 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. 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 buying your groceries, cars, and stocks in the exact same manner -- by looking for a great deal.

Fool contributor Brian Pacampara never goes full-service at the pump and holds no position in any of the companies mentioned. The Fool's disclosure policy is never, ever cheap.