5 More Frugal 5-Star Stocks

Happy New Year, Fools! As I resolve to cut out junk food, fantasy sports, and multiple-hour YouTube marathons, there's one habit of mine that I never plan to drop -- looking for bargain-basement stocks.

After all, no matter how many "new" years have come and gone, value investing has always been a tried, tested, and true way to beat the street.

Our penny-pinching process
So in that spirit, and with the help of our community over at Motley Fool CAPS, I'll help ring in 2007 by looking for some cheap value stocks. The approach is far from complicated: 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 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 Heelys (NASDAQ:HLYS) or Chipotle Mexican Grill (NYSE:CMG) 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 2007's first list of Frugal 5-Stars:

As always, this week's list includes relatively unknown companies in some boring industries. Other than Accenture, which seems to sponsor every golfing event on the PGA tour, the rest of the list is comprised of a low-profile rock quarry, metal fabricator, chemical producer, and natural gas company. 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.

An accentuated bargain?
This Inside Value pick looks to start the new year exactly where it left off: growing revenue and profits at record rates, expanding its international reach, and extending an already significant lead within the IT consulting industry. With a reasonable valuation to boot, 2007 should prove to be a good year for investors buying at these fairly frugal levels.

CAPS All-Star MG80 accentuates Accenture's global dominance:

"ACN is the blue chip of IT Services: intense leadership, well-trained staff, always a step or two ahead of its competitors. ACN is moving aggressively into transformational consulting: taking over, running, and improving client operations."

Florida's cheap pet rock
Florida Rock Industries -- which distributes sand, gravel, concrete, and cement -- is another company that has been setting record sales and earnings lately. Because of substantial weakness in the Florida residential real-estate market, the Jacksonville-based company will instead look to non-residential and highway construction for growth opportunities in 2007.

CAPS All-Star Daveskii believes this quarry's price and prospects are rock-solid:

"Stock is out of favor due to slump in housing stocks. However, the stock is very cheap and is also exposed to the construction market and the commercial market which are doing well. I think the stock is way oversold at these levels."

A carpenter with hands of steel
Carpenter Technology is yet another Frugal looking to carry impressive momentum into the new year. In late October, the manufacturer of stainless steel and titanium products reported a 17% increase in sales, while earnings grew 21%. Yet despite those numbers, the company still managed to miss analysts' expectations and saw its shares decline significantly over the past few months.

However, CAPS All-Star metoo105 has a few ideas on why this skilled carpenter is being priced like hack -- all of which point to a great bargain opportunity for potential investors:

"This company is also mispriced because of confusion about where it belongs. Is it a steel company? A supplier for aerospace? The truth is that it's all that and more with expanding international sales."

Selling a nickel for a dime
Last month, OM Group -- which produces metal-based chemicals and materials -- announced a decision to sell its nickel business for $408 million in cash. Although the stock has more than doubled during the past year, many players in our CAPS community feel the restructuring will be a catalyst for more outsized returns in 2007 (as the company lessens its exposure to the volatility associated with metal prices).

metoo105, who is ranked 50th out of 18,736 CAPS players, chimes in once again with an opinion on the asset sale: "Sold nickel assets while prices are high.... Smart move!"

This Talisman's got some cheap charm
Last and certainly least expensive is Talisman Energy, an independent oil and gas producer in Canada. In an effort to divest from non-core operations, the Calgary-based company recently sold part of its interest in the Canadian oil sands. Talisman heads into 2007 by continuing to repurchase shares with the proceeds -- a possible indication that management also thinks its own shares are too cheap to pass up as an investment.

CAPS resident jaygatsby49, would likely concur:

"This Canadian oil firm has been consistently undervalued and ignored by U.S. analysts. Look at the fundamentals and you have to wonder why it isn't trading higher."

Fool's final word
As always, what we say here isn't meant to be taken as a formal recommendation; we want only to generate some possible ideas that you might find worth 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, be sure to start off 2007 with stocks that are cheap enough to have, but also good enough to hold.

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Fool contributor Brian Pacampara toasted the new year with soda and saltines, but holds no position in any of the cheap stocks mentioned. The Fool's disclosure policy is always highly rated.