5 More Frugal 5-Star Stocks

Coming off an injury-plagued 2005, the Philadelphia Eagles started this year's football season as a 50-1 long-shot to win the NFC championship. Although there is still plenty of football left to be played, the Eagles took another step towards the NFC title by knocking off Eli Manning, Plaxico Burress, Tiki Barber, and the rest of the New York Giants with a 23-20 win in last night's wild card game. It should be noted that the high-profile Giants were being offered at odds of 15-1 to win the conference at the beginning of the season.

So what does all of this mean for us Foolish investors? It simply illustrates that whenever we try to bet on future events -- whether in sports, insurance, blackjack, or the stock market -- things rarely pan out exactly as expected.

That's why it's so important to make sure we're always getting a great price for the risk we assume. The Eagles at 50-1 have already proven to be a much better risk/reward scenario than the Giants at 15-1.

Expectations are everything in investing, and more often than not, gambling on football teams and stocks priced with lofty expectations are a dangerous bet.

Our penny-pinching process
So, in that spirit, and with the help of our community over at Motley Fool CAPS, I'll be looking for more cheap value stocks with very little expectation baked into the price. 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 Adobe Systems (NASDAQ:ADBE) and Crocs (NASDAQ:CROX) 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, our family of Frugals is dominated by low-profile companies domiciled in some boring industries. This week's list comprises a training company, an international driller, a railroad company, a professional staffer, and an energy producer, respectively.

Not exactly the most stimulating bunch of businesses, are they?

That's OK. Here's a quick summary of two particularly interesting Frugals -- GP Strategies and ConocoPhillips -- as well as what some of our CAPS players are saying about them. Some of the bullish arguments might just keep you from dozing off.

A very cheap strategy
One of my favorite stocks on this week's list is GP Strategies, a global provider of training and engineering services. This Maryland-based company is certainly doing a good job in taking advantage of favorable corporate training and outsourcing trends that we've seen in recent years.

In early November, the company reported that third-quarter net income increased 20%, while free cash flow also remained at a healthy level. CEO Scott Greenberg attributed this latest surge of growth to increased demand in the business process outsourcing segment (BPO), as well as a significant reduction in operating costs.

But GP is far from a cookie-cutter training and consulting provider. The company differentiates itself by specializing in specific niches such as FDA compliance training, e-Learning, and even chemical demilitarization. Its list of clients includes BMW, Ford, Sun Microsystems, and Homeland Security.

Yet despite strong secular trends and impressive fundamentals, the stock appears to remain cheap (and attractive). As fellow Fool Tim Hanson notes, the market's best stocks are generally obscure, ignored, and small -- characteristics that define GP Strategies pretty well.

CAPS player Patrick6k is another Fool who sees value in this underfollowed company:

"They have a solid management crew, good inside ownership, and they just got a fat government contract through one of their subsidiaries. This is another great small-cap value play that should have thunderous returns for investors in the coming years."

How low can Conoco go?
With an EV/EBITDA multiple of just below four, ConocoPhillips is our least expensive stock. The Houston-based powerhouse is the third largest oil company in the U.S., the sixth biggest publicly traded oil company in the world, and the largest natural gas producer in the world.

Yet despite those gargantuan size statistics, Conoco's stock continues to trade at a significant discount to its peers (or so our CAPS community fervently believes, anyway). As a quick-and-dirty example, Conoco's close competitors, BP and ExxonMobil, trade at EV/EBITDA multiples of 5.3 and 4.9, respectively. Even Warren Buffett's Berkshire Hathaway took about a 1% stake in the Houston-based company last year.

Now, if strong CAPS sentiment and support from the world's greatest investor still has you unconvinced about Conoco's prospects, maybe the company's recent investments in Venezuela, Asia, the Middle East, and Russia might be something you find attractive. In fact, the 20% investment in Russian oil company Lukoil gives Conoco coveted access to hydrocarbon reserves that should prove fruitful for COP investors over time.

BlueStarLikes is a CAPS resident who thinks these frugal levels are just too low not to hit the black gold:

"Best value of larger U.S. integrated oil producers.... Management has stated they will use cash flows in 2007 to pay down debt and decrease leverage. Stock price multiples should increase as the year progresses from the absurdly low ratios of late 2006 and early 2007."

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. I'll be back next week to highlight another batch of Frugals for your perusal. Until then, keep rooting for (and betting on) the underdog!

Labor Ready and Berkshire Hathaway are Motley Fool Inside Value recommendations. To find more top-shelf stocks at bargain-bin prices, sign up today for a free 30-day guest pass.

Fool contributor Brian Pacampara loves taking sleepers, but holds no position in any of the companies mentioned. The Fool's disclosure policy is always a stone-cold lock.