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 possibly the best way to squeeze a whole lot of bang out of a hard-earned buck.
As legendary investor Christopher H. Browne writes in The Little Book of Value Investing, we should always attempt to "buy stocks like steaks ... on sale."
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 five-star stocks (the highest rating a stock can get in CAPS) that have enterprise value-to-EBITDA (EV/EBITDA) multiples below 10. We'll use EV/EBITDA rather than the more common price-to-earnings ratio, so that we can account for differences in each company's capital structure.
Dive in the bargain bin
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 bargain bin:
|
Company
|
EV/EBITDA (ttm)
|
Caps Bulls
|
Caps Bears
|
Industry
|
|
Grupo Radio Centro (NYSE: RC)
|
8.8
|
30
|
3
|
Broadcasting
|
|
Twin Disc (Nasdaq: TWIN)
|
8.2
|
49
|
1
|
Machinery
|
|
RC2 (Nasdaq: RCRC)
|
8.1
|
210
|
3
|
Toys & Games
|
|
Excel Maritime Carriers (NYSE: EXM)
|
7.8
|
103
|
4
|
Shipping
|
|
Superior Essex (Nasdaq: SPSX)
|
6.4
|
32
|
2
|
Aluminum
|
|
Quanex (NYSE: NX)
|
5.3
|
72
|
3
|
Aluminum
|
|
Jakks Pacific (Nasdaq: JAKK)
|
4.5
|
164
|
3
|
Toys & Games
|
Data provided by Yahoo! Finance and Motley Fool CAPS
As usual, our list isn't exactly brimming with exciting, or even well-recognized names. But that should be just fine with us. As sharp Fools know well, boring stories often translate into the market's biggest returns.
Playing the market
Picking great stocks isn't exactly child's play. However, RC2 -- a licensed toymaker of wildly popular names like Dora the Explorer, Thomas & Friends, and even John Deere -- might be a smart way to profit from fun.
Last month, our own Bill Mann noticed that RC2's well-known stable of brands was being coupled with an attractive valuation, and recommended it to Motley Fool Hidden Gems subscribers. With more than 100 bullish All-Stars, our CAPS investors seem to have climbed aboard the Thomas Tank Engine also.
RC2 has been undergoing a restructuring over the past few years, selling off several divisions (collectables and die-cast) to focus on toys geared toward young children. Naturally, these write-downs have negatively impacted RC2's recent results, but as Bill Mann noted, long-term signings with two prominent entertainment companies should be strong catalysts for future growth.
In addition, all five Wall Street firms covering RC2 in our CAPS database have outperform calls on the stock. Of course, that in itself doesn't mean much, but three of them also happen to have All-Star ratings. Could our Hidden Gems team, CAPS community, and some of Wall Street's best be wrong about RC2? Absolutely.
But when that many astute investors feel strongly about a relatively cheap, largely underleveraged company, with tons of well-known brands, I don't think betting against them would be much fun. Here are three CAPS players with some playful comments:
- CAPS All-Star Jeffreyw likes RC2's brand-power and says, "Great toys and recognizable names -- Bob the Builder, Dora the Explorer, Thomas the Tank Engine and many favorites from Nickelodeon and Noggin! Product lines will be expanding, may also look for acquisitions."
- CAPS All-Star smith972 gives us a rundown on some of the company's licensing deals: "Some of their products are licensed with high-profile companies such as John Deere, Thomas & Friends, Bob the Builder, Case New Holland, Polaris, Honda, Ford, GM, Chrysler, NASCAR, NHRA, Texaco, Disney and many others."
-
hotwheels71, meanwhile, talks a bit about RC2's restructuring efforts: "RCRC is refocusing their toy business on their strengths, and getting good leverage with some very powerful and enduring brands, such as Bob the Builder and Dora the Explorer. A lot of potential here."
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 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.
For more cheap Foolery:
Make seven picks on CAPS by April 24 and we'll send you a free copy of The Motley Fool Five-Star Report. Inside, you'll discover how to use CAPS as a research tool, and you'll receive a recommended five-star CAPS pick poised to beat the market for the next decade or more -- one that you can easily translate into profits for your real-world portfolio. Click here to get started now!
Unconvinced about the power of cheap stocks? Fool contributor Brian Pacampara has been tracking the stocks used in this column. Currently, The Frugals are ranked 160 out of 27,496 portfolios. You can check it out here. He owns no position in any of the companies mentioned. Disney is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy.
Terms & Conditions
RSS Headlines
Fool UK