Top-Rated Stocks in the Bargain Bin

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 four- or five-star stocks 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.

Let's dive right into this week's bargain bin:

Data provided by Yahoo! Finance; CapitalIQ, a division of Standard & Poor's; and Motley Fool CAPS.
ttm = trailing 12 months.

As usual, our list isn't brimming with the most exhilarating businesses. But that should be just fine with us. As sharp Fools know well, boring stories often translate into the market's biggest returns.

Foolish groupies
Having to compete against the likes of Accenture (NYSE:ACN), IBM (NYSE:IBM), and Electronic Data Systems doesn't exactly set the stage for a great investment, but according to our community, CGI Group might still be a pretty good one. Of the 56 CAPS All-Stars who've rated Canada's largest IT services company, just a single one believes it will underperform.

Specifically, Fools are drawn to the company's strong presence in Canada, steadily growing global exposure, and the way it seemingly flies under Wall Street's radar. Despite steadily adding to an already blue-chip roster of clients, and posting improving returns on capital over the last few years, CGI consistently trades at a pretty decent discount to the industry (P/E basis).

From a financial health perspective, CGI is in good shape with about $80 million in cash, $438 million in debt, and healthy cash flows which have traditionally been used to buy back shares.

The firm's founder/managers recently monetized a big chunk of their position, which should normally give Fools pause, but the stock is at least worth a closer look. CAPS player estambar explains why:

Even though the leadership at this company recently "capitalized" large portions of their positions, I believe that this company is poised for significant profitability over the next few years. The weak U.S. dollar doesn't hurt this firm as much as it does other consulting firms, as they generate a significant portion of their business outside the U.S.

And back in 2006, CAPS All-Stars sandvig had this to say about the business model:

This looks like an interesting business to me. They provide business process outsourcing services. It looks like their customer base includes a number of governmental entities. I would think those customers have a high inertia factor and would be rather stable.

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 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.

Oh, and it's totally free -- an offer that even the deepest of value investors should never pass up.