I'm the first to admit that I'm an investing geek to the core. Like kids with cartoons, I'm content spending an entire Saturday morning doing one thing: running financial screens. Most of the screens are related to the mutual fund work I do for the Fool, but I'm not at all immune to the pleasures of crunching stock stats. Not even close.
Case in point: I spent most of a recent Saturday morning running the numbers in search of what my Fool colleague Philip Durell might consider dirt cheap dream stocks -- those long-haul market-beaters that look cheap now, on the basis of certain valuation and stock price metrics.
It's a hit!
The first company to pop up on my hit list was Bed Bath & Beyond (NASDAQ:BBBY). This retailing stalwart has cranked out an annualized return of 20.5% for the 10 years that ended in February yet currently trades with a price-to-earnings (P/E) multiple that's roughly half the company's five-year average. And in terms of stock price, Bed Bath & Beyond is nearly 22% below its 52-week high. Time to add that one to my "research further" list.
Elsewhere, BJ Services (NYSE:BJS) -- a leading player in the oil industry's pressure-pumping business -- also made the grade with my screen. It clocked in with an annualized 10-year return of nearly 25%, a P/E ratio that falls well below the average of the oil and gas service industry, and a stock price that's roughly 27% below its trailing-12-month peak (although the stock has returned a bit since my screen).
Apple looks cheap?
Dell (NASDAQ:DELL), SanDisk (NASDAQ:SNDK), and homebuilders DR Horton (NYSE:DHI) and Pulte Homes (NYSE:PHM) sport similarly discounted profiles, despite their many years of market-beating performance. Amazingly -- given the run it's had recently -- Apple Computer (NASDAQ:AAPL) nearly landed among my list of contenders, too.
Here we have a company with the coolest "must-have" gadget to hit the market since the Rubik's Cube, a company with a 10-year annualized return of nearly 26%. And yet the stock of the firm that Steve Jobs built is trading some 27% off its 52-week high.
Ultimately, though, Apple didn't make the cut with the screen I was running. Why? Because its P/E ratio ticks up above that of the company's average industry rival. That doesn't come as much of a surprise, of course: In both 2004 and 2005, Apple stock notched triple-digit gains. Perhaps a bit of a haircut is in order.
Caveat emptor
With that last point in mind, it's certainly worth noting that just because a group of stocks screens well on certain data points doesn't make 'em cheap. There are a host of other valuation metrics to consider, and before taking the plunge with any investment, you certainly want more in the way of scuttlebutt and qualitative analysis.
Still, I was able to come up with an intriguing list of stocks that I wanted to research further. And all I had to do was forgo Bugs Bunny -- or whatever it is they air these days on Saturday morning TV. Just imagine what you might find if you spent some serious time ferreting out the market's bargains.
The Foolish bottom line
Better yet, let us do the imagining for you! Enter Philip Durell, the man who runs the Fool's Inside Value newsletter service. Each month, Philip recommends two stocks that meet his stringent valuation criteria and measure up in terms of free cash flow (FCF). (From my list above, Dell has made Philip's Inside Value cut as a formal recommendation.)
If you're an investing cheapskate like -- ahem -- I am, you're in luck: A free 30-day Inside Value guest pass is yours for the taking. Your pass provides access to all past and current recommended stocks, as well as back issues and members-only discussion boards. Just click here to learn more.
Shannon Zimmerman, lead analyst for Motley Fool Champion Funds doesn't hold a financial position in any of the companies listed. Bed Bath & Beyond and Dell are Motley Fool Stock Advisor recommendations. The Fool is investors writing for investors, and you can read all about our disclosure policy by clicking right here.
