Everyone loves a bargain. Be it at the grocery store, the local flea market, or 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 list of cheap stocks:



Caps Bulls

Caps Bears


Eastern (AMEX:EML)




Tools and accessories





Electronic stores

Gardner Denver (NYSE:GDI)





The Dress Barn (NASDAQ:DBRN)




Apparel stores





Oil and gas

Gerdau (NYSE:GGB)




Steel and iron

Safety Insurance Group





Data provided by Yahoo! Finance and Motley Fool CAPS.

As usual, our bargain bin 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.

Here's a quick summary of one particularly undercovered stock on the list. The bullish arguments might just be enough to have you hitting the broad side of a Dress Barn.

Barnyard bargain
Fortunately, customers of Dress Barn, a New-York based retailer, don't actually have to endure manure-scented fragrances and maneuver through stacks of prickly hay in order to pick out something nice to wear. As the operator of more than 800 popular dressbarn stores and 565 Maurices stores across the U.S., Dress Barn's operations are far from an animal house.

We Fools love family-run businesses with strong insider ownership, and Dress Barn looks like it has those features. In 1962, Chairman Elliot Jaffe co-founded the company with his wife, Roslyn, and he continues to own about a quarter of the company. His son, David, acts as CEO and has managed to post 12 consecutive quarters of same-store sales increases.

Despite the fickle nature of retail, the Jaffes have leveraged the Dress Barn brand to produce double-digit revenue growth, net income growth, and returns on equity over the past five years. The stock trades at a forward P/E of about 14, a PEG of 0.90, and at less than its sales, so Dress Barn could be anything but wildly overpriced.

I'll leave it to our very own partner in CAPS, NetscribeRetail, to let us know why this stock is dressed for success:

  • On Dress Barn's recent results, Netscribe says, "The second quarter performance of fiscal 2007 has also been good with about 9.5% growth in the revenues. The fine results were driven by store openings and robust sales from categories like knitwear and blazers."
  • Regarding future demographic trends, Netscribe is just as excited: "... as per the consumer purchasing trends in U.S, women from baby boomers generation outpace average women apparel spending. This foretells good fortunes for the company as it generates approximately 65% of its revenues from 'Dressbarn' and 'Dressbarn Women' brands that primarily cater to women aged between 30 and 55."
  • And if you're looking for a shorter-term outlook on Dress Barn, Netscribe also fills us in: "Traditionally, company has earned more revenues in the spring season and the coming spring could match the expectations as company has planned to open 47 new Maurice stores and 20 new Dress Barn stores to boost up the sales ... In the light of these facts, Dress barn is worth wearing."

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.

That's all for this week, Fools. Be sure to join me next time when I'll highlight another bunch of cheap stocks from CAPS. Until then, keep your portfolios brimming with bargains.

For more cheap-ish CAPS content:

Think you can pitch your favorite stock -- or ditch your least favorite one -- in 27 seconds or less? That's just what we're doing over at Motley Fool CAPS. Come check out our 27-second stock videos.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Safety Insurance is a Motley Fool Stock Advisor choice. Sasol is a Global Gains pick. The Fool has a disclosure policy.