5 More Frugal 5-Star Stocks

Buying stocks for less than their true worth is one of the most powerful concepts in investing. The idea alone prompts many investors, including our own Philip Durell at Motley Fool Inside Value, to focus on getting a "great deal" rather than taking fliers on unproven companies.

If this sounds like a smart strategy, you're absolutely right, Fool. After all, the evidence has consistently shown that value trumps growth over the long haul.

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 search for some cheap value stocks. The approach is far from complicated: I'll run a simple screen for five-star stocks (CAPS' highest rating) that have enterprise value-to-EBITDA (EV/EBITDA) multiples below 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-profile, high-multiple growth stories like Apple Computer (NASDAQ:AAPL), Under Armour (NYSE:UA), or CBOT Holdings (NYSE:BOT) as part of the Frugal 5 anytime soon.

Meet the Frugals
Instead, 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 Frugal 5-Stars:

As always, this week's list includes relatively unknown companies in some boring industries. Other than Rofin-Sinar, which makes lasers (can anything be cooler?), the rest of the list is comprised of a staffing firm, a waste service provider, a sewage company, and a chemical producer. Getting drowsy yet?

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

Un-laser-like focus
Last November, Rofin-Sinar, a leading developer of high-performance laser-based solutions (and a Motley Fool Hidden Gems recommendation), reported record sales and net income for fiscal year 2006. As was noted by our Hidden Gems team, Rofin's diversification across product lines, market sectors, and geographic locations is one of its major strengths.

CAPS All-Star TMFPlatoish1 believes Rofin has the staying power required to be a great long-term investment:

"RSTI is the best pure play in the laser industry ... Their management is conservative, honest, and is very focused on improving margins and operating efficiency. A Rip Van Winkle stock -- go to sleep and check back in 10 years."

Barrett's in business
Barrett Business Services also reported impressive results last November, growing net income 28.2% from the same quarter in 2005. The company believes that its "one-two" punch of staffing and professional employer services gives it an advantage over the competition.

CAPS player 89RUSSELL likes the way Barrett is positioned for the future:

"BBSI has shown consistent growth over the past 4 years. I think that their earnings are much less cyclical in nature than they were in the past. Their revenues are less dependent on staffing and the professional employer organization (PEO) side of their business is growing very fast."

A cheap stock gone to waste
Despite recent insider sales by its president and chief executive Jim Perry, Waste Industries isn't even close to being down in the dumps. The stock has more than doubled during the past year, fueled primarily by the strength of the waste management industry.

CAPS resident TMFLucky11 believes this small trash collector from Raleigh could grow up into a major waste manager someday:

"There's treasure in trash. I like Waste Industries' growth so far and its plans for the future. Plus, since waste collection's a necessity, the company will march on despite economic downturns. It's a small company with room to grow, and I'm always intrigued by such a matchup. The next Waste Management? We'll see."

Southern-fried sewage
Companhia de Saneamento Basico do Estado de Sao Paulo (Sabesp) is long and confusing name for a business that's far from complicated. Sabesp provides water and sewage services in the state of Sao Paulo in Brazil -- an area where there appears to be ample growth opportunity.

More than 20% of the sewage in Sao Paulo remains untreated, the sewage business remains relatively non-cyclical, and the Brazilian economy as a whole continues to show rapid growth. Those are just a few reasons why CAPS player Thlete is also bullish on Sabep's prospects:

"Clean water is gold, especially in a fast developing South American country like Brazil. This company gives a high dividend and is also a fast grower. I see this stock doubling in 2007."

Verbundle of German joy
Last, and certainly least-expensive, is BASF, the largest chemical company in the world. BASF's recent focus on nanotechnology is just one more example of the company's "Verbund" strategy in full display.

Verbund, which is German for network, places a strong emphasis on a vertically integrated supply chain. Said in simpler terms, BASF tries to increase scale, efficiency, and its competitive advantage by getting into pretty much everything! As CAPS All-Star prose976 puts it:

"MF CAPS 5-star, incredible sales revenues, largest chemical producer in the world (almost everything manufactured requires chemicals), making some excellent strategic acquisitions, steady climber, great consistency and track record. This is one of those companies (like Altria) that has something to do with everything, but nobody realizes it. Pays dividends."

The Foolish bottom line
As always, what we say here isn't meant to be taken as a formal recommendation; we only want to generate ideas that you might find worthy of further research. If you'd like to search for Frugals of your own, 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. We'll be back next week to highlight another batch of Frugals for your perusal. Until then, keep your stocks cheap, but your taste for quality expensive.

Foolish contributor Brian Pacampara holds no position in any of the companies mentioned. The Fool's disclosure policy is always at a premium.