A typical value investor is often thought of as someone who eschews risk. After all, the heart of value investing is to buy companies for below the intrinsic value of their assets, and to avoid risks like commodities that can drive down asset values quickly and sharply. 

However, investors with a little bit of derring-do may sometimes see value where others see only risks or a dead-end. Three stocks that almost certainly meet that criteria are Clean Energy Fuels Corp. (NASDAQ:CLNE)Alliance Resource Partners, L.P. (NASDAQ:ARLP), and Cameco Corp. (NYSE:CCJ), but our contributing investors think there's hidden value here. 

A drawing of two lightbulbs separated by a dotted line and an ink pen. One has "risk" written beneath it, the other has "reward".

Image source: Getty Images.

Keep reading to learn what sets these three out-of-favor stocks apart, and why daring investors should give them a hard look. 

The trajectory of its cash flows has this stock potentially dirt cheap

Jason Hall (Clean Energy Fuels): If you've watched the price of Clean Energy's stock over the past few years, I wouldn't fault you for think this was a failing company knocking on the doors of death:

CLNE Chart

CLNE data by YCharts

At least you might think that if you didn't go any further than just looking at the stock price. But when you pop the hood on the business itself, things look very different. Cash flows and funds from operations have improved greatly in the past three years:

CLNE Funds from Operations (TTM) Chart

CLNE Funds from Operations (TTM) data by YCharts

This is a product of three things:

  • Cutting operating expenses, debt, and capital spending to drive down cash outflows.
  • Still spending enough capital to grow the station count. 
  • Growing fuel volumes sold to drive higher gross profit dollars. 

And this has the company positioned for what could be its best year ever from a cash-flow perspective, as its SG&A and interest expenses will be millions less this year, and fuel volumes are on track to grow in the high single digits again, driving even more profit margin dollars and potentially being free cash flow positive for the full year while also paying off even more debt. 

From a value perspective, Clean Energy trades for less than 4 times trailing EBITDA, and less than 18 times cash from operations. For a company set to grow cash flows and core fuel volumes by nearly double-digit rates, that's pretty cheap. 

The risk? A major asset sale earlier this year will further reduce debt and operating expenses, but it will also affect margins. If the effect is bigger than expected, cash flows could suffer. On balance, I think the reward is worth the risk. 

Death-defying value

Reuben Gregg Brewer (Alliance Resource Partners, L.P.): Want to be daring? Buy Alliance Resource Partners, one of the best run miners of coal -- an industry that has basically been pronounced dead. Yet somehow, this 10%-yielding partnership has managed to remain profitable in the face of industry headwinds that have pushed peers such as Peabody Energy (OTC:BTU) into bankruptcy.

There are a couple of things to think about here. First, coal is slowly being pushed out of the energy landscape -- but its demise is exaggerated today. For example, the U.S. Energy Information Administration (EIA) expects coal to remain an important fuel option in the domestic electric industry until 2040 and beyond. But it pays to be in the right coal region. According to the EIA, the interior region is projected to increase its share of U.S. coal shipments from 20% in 2016 to 26% in 2040.    

And that's where Alliance comes in. It's focused on the Illinois Coal Basin, which is in the interior region. Although the miner's production fell a little in 2016, it's up 20% since 2010. Compare that with Powder River Basin-focused Cloud Peak Energy (NYSE:CLD), where production fell 35% over that same span. Yes, the coal industry is troubled. But Alliance is bucking the trend in a big way.    

Here's the best part: Alliance has remained profitable throughout the coal industry's downturn, unlike most peers. Alliance's enterprise value-to-EBITDA ratio, meanwhile, is a tiny 2.5 or so, well below Peabody's 9.6 and Cloud Peak's 3.8. It's also below fellow Illinois Basin-focused partnership Foresight Energy, with its 9.6 EV-to-EBITDA ratio. Alliance is not only the cleanest dirty shirt in coal, but it's also one of the best values in the industry.    


ARLP EV to EBITDA (TTM) data by YCharts

That said, it's reasonable to be concerned about the partnership's 2016 distribution cut, though even that's not as big a worry as you might think. For example, it covered its 2016 distribution by two times last year, a massive amount of coverage for a partnership. That backs up management's statement that the cut was driven by worried capital markets and not by financial necessity. In fact, it recently hinted that distribution growth might be in the cards in the near future again.    

Coal is deeply out of favor, and for good reasons. But all coal companies are not alike, and Alliance Resource Partners is worth a closer look if you're a daring value investor.

Down but not out

Neha Chamaria (Cameco Corp.): As the world's largest uranium producer, Cameco Corp. depends entirely on the fate of nuclear reactors across the world -- more so Japan, which was leading a nuclear power renaissance when the Fukushima Daiichi nuclear disaster in 2011 caused an industry meltdown. Cameco has been battling for survival ever since, and it's only fair to say that the company has done a great job staying alive, having maintained its top line at decent levels and avoiding a dividend cut all the way through. The company has also been free-cash positive in the past couple of years, which is further proof of management efficiency.

But with uranium prices still at multi-year lows and Cameco Corp. shares trading at less than half their 2012 values, is it time to buy? Well, not only has Cameco survived its ordeals, but it's also been able to realize significantly higher prices than the spot for uranium thanks to the long-term contracting nature of its business. Cameco has also already locked in a portion of its revenue for the next five years as it awaits a recovery in uranium prices.

It's not that the nuclear power industry is dead. Several nuclear reactors are under construction worldwide, especially in high-growth countries such as China and India. Back home, the EIA projects nuclear power's contribution to electricity to nearly double by 2040.

Cameco stock is now trading at around 6.6 times operating cash flow and is even with its price-to-book value -- both of those figures are considerably lower than the stock's three- and five-year average ratios, respectively. A 3.1% dividend yield is the cherry on top. Between a potential price recovery and Cameco's leadership position in the industry and display of resilience through the downturn, I believe the stock offers greater upside than downside at current levels, for investors willing to invest in a well-managed company that's been a victim of circumstances.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.