The hardest part of investing is that the best time to buy is when you look and feel the dumbest doing it. Even investors who understand this, and most of us do, fail to implement it when the time comes. Most minds are not wired for contrarian thinking (which is pretty obvious). That's why Warren Buffett is rich, and most of us are not.

But give it a try. Read the headlines today. Read the commentary. Listen to the talking heads. The fear factor is back in the market, and it's mad as hell. Europe is slowly dying. The U.S. is on a path to a double dip. Housing is an unequivocal wreck. Analysts from nearly all industries are losing hope. Find me one positive headline from the past month, and I'll show you six foretelling doom.

If any of this gets your contrarian juices flowing, keep reading. I've got five cheap stocks you can buy today.

By the numbers
To find these stocks, I'm using my favorite valuation method: enterprise value over unlevered free cash flow. To elaborate:  

  • Enterprise value: Market capitalization plus total debt and minority interests, minus cash.
  • Unlevered cash flow: Free cash flow plus interest paid on outstanding debt.

The ratio of these two metrics shows what the most popular valuation techniques, namely the P/E ratio, do not. It shows what a company truly earns -- free cash flow with interest payments added back in -- in relation to enterprise value, or the value of capital owned by everyone with a stake in the company, both stock and bondholders.

This way, you, the shareholder, are forced to think about the interests and ramifications of bondholders. Why should you care? Because bondholders have to be taken care of before shareholders. In this sense, they're more important than you. Ignoring this simple truth -- basically, the concept of leverage -- has led to misery aplenty. GM shareholders will tell you all about it. If you owned a private business, this is the metric you'd naturally use to size things up. Think of it as a more comprehensive, more meaningful, P/E ratio.

Without further ado, here are five companies that look cheap:

Company

Enterprise Value to
LTM Unlevered Cash Flow

5-Year Average

CAPS Rating
(out of 5)

Gannett (NYSE: GCI)

8.7

10.3

**

Reynolds American (NYSE: RAI)

7.9

12.2

***

UnitedHealth (NYSE: UNH)

6.0

12.0

****

Procter & Gamble (NYSE: PG)

14.9

25.1

*****

VF Corp. (NYSE: VFC)

8.3

19.5

***

Source: Capital IQ, a division of Standard & Poor's.
LTM = last 12 months.

Let's say a few words about these companies.

Gannett is the best company in an absolutely terrible industry (newspapers). While its competitors die a slow, painful death, Gannett is actually quite profitable, thank you very much. Its flagship service, USA TODAY, has held up better than most papers because it's a staple in places like airports, hotels, and gyms, where people who typically would never touch a physical paper often do so. Its one major drawback, a heavy debt load, is being handled quite efficiently by a managmenent team that's on a mission to get rid of it.

Reynolds American, the cigarette giant overshadowed by Altria (NYSE: MO), has a 6.8% dividend yield, which is about as high as you'll find these days. Yes, the cigarette industry is up against new taxes, marketing laws, and the ever-present threat of litigation battles. But dominant players like Reynolds and Altria might actually benefit from the first two, as it's now nearly impossible for new competition to enter the marketplace. As for litigation threats, this has been a worry for decades, and the dividend yield you're being paid is ample compensation.

Last summer, I could see why investors were scared of insurance stocks like UnitedHealth. With the health-care bill pending and all sorts of noxious rhetoric spewing around -- death panels! nationalization! -- there was reason to be rationally scared. But substantially all of that risk is now off the table, and yet most health-care stocks haven't materially budged. On the whole, they're some of the cheapest stocks around. It's like there's a market moratorium on guts. Exploit that.

It's hard to exaggerate the power of Procter & Gamble. I'd call it the best consumer brand in the world, mostly because it's a collection of spectacular brands with the power of diversity -- a trait that others, like Coca-Cola (NYSE: KO), lack. By almost any valuation metric, P&G shares are cheap on a historical basis. China's decision to unshackle its currency could also be a boon for multinationals like P&G.

VF Corp. -- a diversified apparel manufacturer -- has a brilliant business model. It uses the stable and generous cash flow from assets like Wrangler Jeans and JanSport to capitalize high-growth prospects like 7 For All Mankind jeans and The North Face. The result is basically a cash-cow stalwart with a call option attached. It's a rare, and lucrative, arrangement.

Have at it
Any other cheap stocks on your radar? Share 'em in the comments section below.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel owns shares of Altria and Procter & Gamble. Coca-Cola and UnitedHealth Group are Motley Fool Inside Value recommendations. UnitedHealth Group is a Motley Fool Stock Advisor selection. Coca-Cola and Procter & Gamble are Motley Fool Income Investor choices. The Fool owns shares of Coca-Cola, Procter & Gamble, and UnitedHealth Group, and has a disclosure policy.