5 More Frugal 5-Star Stocks

Hey there, Fools. Welcome back for the second edition of "5 Frugal 5-Star Stocks," where I search for cheap companies that the manic Mr. Market doesn't seem overly excited about.

Buying stocks for significantly less than their true worth is the method that investors such as Bruce Berkowitz, Bill Nygren, and Warren Buffett have used in establishing their legendary status. It's also the method that fellow Fool and value-investing guru Philip Durell uses to trounce the market for subscribers over at our Motley Fool Inside Value service.

Of course, the tricky part of this approach is being able to tell the difference between authentic value and a value trap -- something that the aforementioned masters have, well, mastered!

Our penny-pinching process
So in that spirit, and with the help of our community over at Motley Fool CAPS, I'll also try to separate the valuable wheat from the worthless chaff. The approach is far from complicated and even borders on the elementary: I'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 of less than 10. I'll be using EV/EBITDA rather than the more common price-to-earnings ratio, so that we can account for differences in each company's capital structure.

In other words, you won't be finding high-flying, high-multiple growth stocks such as Research In Motion (NASDAQ:RIMM), Google, or Baidu.com (NASDAQ:BIDU) as part of the Frugal Five anytime soon.

Meet the Frugals
Instead, by running this screen, we'll zero in on statisticallycheap 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 Frugal Five-Stars:

Like last time, this week's edition contains relatively inconspicuous companies in some pretty unexciting industries. Multi-Fineline is our only tech-centric company, while the rest of the list is composed of a railroad company, an oil tanker, a restaurant operator, and an air-cargo transporter. Getting drowsy yet?

That's OK. Here's a quick summary of these mundane stocks and what some of our CAPS players are saying about them. Some of these bullish arguments might just keep you from dozing off.

A price with Southern hospitality
With an EV/EBITDA multiple of 9, Kansas City Southern just manages to squeeze into our Frugal family. This was due in large part to a run-up of more than 7% in the Missouri-based railroad company's shares last week. Could Mr. Market be seeing what many in our CAPS community have argued all along?

According to CAPS member TheStanley:

Kansas City Southern Rail (KSU) seems poised to make a huge splash in freight shipment. After gobbling up large tracks of Mexican rail lines, including those servicing some of the largest retail centers in the world, they've also managed to get the largest U.S./Mexico rail crossing under their control.

A favorite not to tank
Nordic American Tanker is another favorite transportation company in CAPS, but instead of working on the railroads, this company works all the live-long day operating Suezmax crude oil tankers out of Bermuda.

One CAPS player in particular, rmenschel, likes the company's solid fundamentals and income-distribution prospects but would still prefer an even lower price before plunging into the Suezmax canal. (Seems like Frugal fever is catching on!)

Strong company, growing quickly, no debt, good margins and returns, strong dividend. I'm personally waiting to buy until the price dips again, but this is a strong investment.

CKE serving up a value meal deal?
CKE Restaurants is probably the most familiar company of this week's bargain bunch. The owner of several well-known casual-dining franchises, such as Hardee's, La Salsa Fresh Mexican Grill, and Carl's Jr., operates more than 3,200 locations in 43 states.

Of course, health issues such as trans-fat content and mad-cow outbreaks have plagued the restaurant industry for quite some time and have probably placed some pressure on CKE's shares, too. But according to CAPS player physicsaidan, America's health concerns don't seem to jibe with the strong operating performance at the purveyor of the Thickburger:

Everyone says that they want to eat healthier ... but same-store sales of Hardee's and Carl's Jr. seems to indicate that what people say is one thing, and what they eat is a 1/2 pound of meat.

Multi-Fineline between a bargain and a bust
Multi-Fineline Electronix is the techie oddball of the group. It designs and manufactures printed circuit boards. The Anaheim-based firm, which also provides assembly solutions such as bar-code scanners, PDAs, and data-storage devices, recently reported disappointing Q4 earnings, but one CAPS participant is attracted to the balance sheet and recent insider purchases.

FreethinkerKW says:

I have patiently waited to nab this stock. Over the past three months, there have been 37 purchases of MFLX stock, most by one beneficial owner: Michael Roth. There is zero debt on the books with about $46.5 million in cash showing .

The price of Air is not up there
And last, but certainly not least, is air cargo transporter ABX Air. The Wilmington, Ohio, airliner, created from the merger of Airborne Express and DHL, is one of the fastest-growing companies in the industry.

The reduction of truck-line haul-management services ABX Air provides to its largest customer, DHL, has affected earnings recently. However, many in CAPS land, including member humvee5000, see the company's stock price, fundamentals, and future outlook as a nice opportunity:

Low P/E with good future earnings growth. Fourth quarter should be very good. Cash flow is great. My expectations are that we should see 30% to 50% gain in PPS [price per share] as the negatives of this year fade and the dollars continue to roll in.

The Foolish bottom line
As always, don't take what we say here as a formal recommendation; we only want to generate some possible ideas that you might find worth further research. If you'd like to read more about what our CAPS community thinks, get in the game.

But of course, if you'd rather sit back, relax, and let thoroughly researched value ideas come to you instead (and I don't blame you!), then try our Motley Fool Inside Value newsletter free for a month. Philip Durell and his team of bargain-hunting analysts really know how to spot a great deal, and they let you in on their market-beating selections every single month.

So, until next week, Fools, keep sniffing out those bargains -- just stay away from damaged goods!

Fool contributor Brian Pacampara owns shares of ABX Air but holds no position in any of the other companies mentioned. The Fool's disclosure policy is always authentic.