Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Don't Miss This Cheap Stock

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Cheap stocks can get cheaper. They often do.

Unfortunately, "cheap" is a relative term. Precious few stocks that trade for low price-to-earnings ratios or below book value are real bargains. They look enticing but are instead value traps -- stocks that deserve the multiples for which they trade, and punish the garbage-grabbers who buy them.

But don't take my word for it. Here are five "cheap" stocks that trapped bargain-hunting prey:


CAPS Stars (out of 5)

Sept. 11, 2004 Price-to-Book Ratio

5-Yr Price Change Since

IAC (Nasdaq: IACI  )




CIT Group (NYSE: CIT  )




PMI Group (NYSE: PMI  )




Semiconductor Manufacturing Int'l (NYSE: SMI  )




Krispy Kreme Doughnuts (NYSE: KKD  )




Sources: Motley Fool CAPS and Capital IQ, a division of Standard & Poor's.

Watch out!
How can you avoid value traps like these? My favorite method is borrowed from Professor Aswath Damodaran. In his book Investment Fables, Damodaran counsels investors to measure low price-to-book stocks by their returns on equity (ROE).

Makes sense to me. Book value is shorthand for equity. A low price-to-book stock is priced as if management won't produce high returns from the equity capital afforded it. Find a stock that defies this maxim -- a stock with an above-average and rising ROE -- and you may have found a bargain.

A machete for when you're in the weeds
Our Motley Fool CAPS database of 140,000-plus members is a great place to start your search. I ran a screen for well-respected stocks trading for less than twice book value, and whose returns on equity were 10% or more. Qualifiers were also trading no more than 25% above their 52-week low, leaving plenty of room for further gains.

Of the 15 stocks that CAPS found hiding in the weeds, FTI Consulting (NYSE: FCN  ) intrigues me this week. The details:


FTI Consulting

Recent price


CAPS stars (5 max)


Total ratings


Percent bulls


Percent bears






% Above 52-week low


Sources: CAPS.

Interestingly, FTI is as intriguing for its growth potential as its value. A cavalcade of Wall Street's finest predicts that FTI will grow faster over the next years than it had during the prior three.

Why, you ask? "The financial crisis will accelerate restructuring and litigation activity more broadly and for longer, translating into more sustained earnings growth for [FTI]," wrote CAPS All-Star ValueMonkey last November. "Management noted that pipeline activity is accelerating, but cautioned on potential further dislocations in Europe."

Since then, industry peer Huron Consulting (Nasdaq: HURN  ) has reported accounting problems, torpedoing its stock and dragging shares of FTI and others lower. Fools buying now may benefit from what looks like a temporary and unjustified haircut.

But that's also just my take. Would you buy shares of FTI Consulting at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

More bargain-basement Foolishness:

Want further guidance? Get 30 days of free access to the Fool's Inside Value service, which spotlights stocks that Mr. Market has put on sale.

Fool contributor Tim Beyers is also a member of the Motley Fool Rule Breakers stock-picking team. Tim didn't own shares in any of the companies mentioned in this article at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is a bargain at any price.

Read/Post Comments (0) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 983909, ~/Articles/ArticleHandler.aspx, 5/24/2016 7:28:11 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Tim Beyers

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at or send email to For more insights, follow Tim on Google+ and Twitter.

Today's Market

updated Moments ago Sponsored by:
DOW 17,706.05 213.12 1.22%
S&P 500 2,076.06 28.02 1.37%
NASD 4,861.06 95.27 2.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/24/2016 4:02 PM
FCN $41.70 Up +1.20 +2.96%
FTI Consulting, In… CAPS Rating: ***
CIT $33.29 Up +0.78 +2.40%
CIT Group, Inc. CAPS Rating: ****
HURN $58.00 Up +2.12 +3.79%
Huron Consulting G… CAPS Rating: *****
IAC $55.19 Up +0.95 +1.75%
IAC/InterActiveCor… CAPS Rating: *****
KKD $21.54 Up +0.19 +0.89%
Krispy Kreme Dough… CAPS Rating: **
PPMIQ.DL $0.03 Down +0.00 +0.00%
PMI Group Inc. CAPS Rating: **
SMI $4.21 Down +0.00 +0.00%
Semiconductor Manu… CAPS Rating: No stars