Yes, the stock market has been on an incredible upward tear, but there has also been a lot of volatility and a lot of stocks left behind. Are there any out there that are outrageously cheap?

I found one recently, and I got to thinking about the others out there when I read money manager Bill Miller's comment that "the market abounds with good value." Of course, Miller also wrote last August that stocks were the cheapest they'd been since 1991 ... and after a brief rebound, they went right on dropping (though the recent recovery has been nice).

But Miller did jump the gun, and his fund suffered last year due to core holdings in some deceptively cheap stocks such as Eastman Kodak (NYSE:EK) and Electronic Arts (NASDAQ:ERTS).

However, there are some individual stocks today that, for one reason or another, remain outrageously cheap.

Back up the truck, people
What makes for an outrageously cheap stock? Here's my short list:

  1. A balance sheet with lots of cash and little debt.
  2. An EV/EBITDA ratio less than 6. (That's enterprise value/earnings before interest, taxes, depreciation, and amortization.)
  3. A business with the financial strength and strategy to survive and thrive in a down economy.
  4. Low potential for massive writedowns.

Now, there are only a handful of large caps or mid caps that meet those criteria, so if you really want to build an "outrageously cheap" portfolio, you may need to start thinking of yourself as a small-cap investor.

Welcome to the jungle
In truth, large caps such as AT&T (NYSE:T) attract far too much investor attention to ever become inefficiently priced. That $150 billion tech giant is tracked by 38 sell-side analysts.

You generally won't find as much interest among small caps, which is one of the reasons why -- given the criteria above -- Abercrombie & Fitch (NYSE:ANF), Chicago Bridge & Iron (NYSE:CBI), and Corinthian Colleges (NASDAQ:COCO) look outrageously cheap.

Company

EV/EBITDA

Net Cash on Hand

Investors Scared Because ...

Abercrombie

5.9

$343 million

Tied to consumer retail spending.

CB&I

4.1

$42 million

Backlog tied to investment in energy infrastructure.

Corinthian

5.5

$202 million

SEC investigation at industry peer Apollo Group (NASDAQ:APOL).

Data from Capital IQ, a division of Standard and Poor's.

Yes, that last subhead was a Guns N' Roses reference
The reason we love being small-cap investors at Motley Fool Hidden Gems is because it's the one area of the market where, thanks to inefficiencies and lack of Wall Street interest, stocks can become outrageously cheap. And there's good reason to think that things will get better for all three of these stocks. Of course, in a down market like this one, that lack of efficiency can make for some gut-wrenching downside volatility.

But we're using current market conditions to recommend the market's best small companies -- stocks that should crush the market averages over the next decade or more.

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This article was first published March 14, 2008. It has been updated.

Tim Hanson does not own shares of any company mentioned. Electronic Arts is a Motley Fool Stock Advisor recommendation. Chicago Bridge & Iron is a Global Gains pick. Apollo Group is an Inside Value pick. The Fool's disclosure policy is decidedly un-outrageous.