5-Star Stocks in the Bargain Bin

Everyone loves a bargain. Be it at the grocery store, the local flea market, or the neighborhood car dealership, people inherently understand the benefits of getting a great deal.

Yet despite this infatuation with bargain opportunities, it doesn't occur to many investors that buying cheap stocks is possibly the best way to squeeze a whole lot of bang out of a hard-earned buck. As legendary investor Christopher H. Browne writes in The Little Book of Value Investing, we should always attempt to "buy stocks like steaks ... on sale."

Our penny-pinching process
So, with the help of our community over at Motley Fool CAPS, I'll once again try to find some cheap stocks for all of my kindred stingy spirits.

The approach is far from complicated: We'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. We'll use EV/EBITDA rather than the more common price-to-earnings ratio, so that we can account for differences in each company's capital structure.

Dive into the bargain bin
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, let's dive right into this week's bargain bin:

As usual, our list isn't exactly brimming with exciting or even well-recognized names, but that's just fine with us. As sharp Fools know well, boring stories often translate into the market's biggest returns.

Slim-fitting stock
As regular readers know, screening for heavy insider ownership is one of the best ways to search a strong investment. So it should come as no surprise that Telefonos de Mexico, a telecom company that's 47.9% owned by Carlos Slim Helu (a.k.a. the richest man in the world), is also a five-star stock in our community.

Currently, 139 CAPS players are bullish about TelMex, with a fair share owing directly to Slim's involvement. In fact, Slim's other major telecom interest, America Movil (NYSE:AMX), is also a five-star stock in CAPS. Talk about Slim pickins!

The Mexico City-born mogul took a majority stake in TelMex back in 1990, acting as the company's chairman until 2004. Today, his son Carlos Slim Domit serves as TelMex's co-chairman, while his nephew, Hector Slim Seade acts as the current CEO. But of course, it's not just this Slim brigade that our CAPS community is fond of.

Take a quick stroll through TelMex's CAPS page, and you'll find plenty of bullish arguments that center on the company's virtual monopoly in Mexico, unmatched offering of "triple play" services, and massive free cash flow generation. So, either way you add it up, TMX is a bargain bin, insider-owned, and cash-flowing stock that's at least worth a slim peek on CAPS.

Now, let's hear from a pair of bargain hunters in our own backyard ...

• CAPS All-Star DaveMartinez says, "Telmex has a near-monopoly status in Mexico and has hedged themselves against possible Mexican instability through their foreign investments. Even if a crisis were to befall Mexico, its near monopoly status would give them lots of leeway to manipulate prices to their advantage. Now that Mexico has mostly shaken the post-election headaches, watch for this stock to soar."
• CAPS All-Star RANDTask leaves us with a comparative analysis: "If BT Group (NYSE:BT) (formerly known as British Telecom) can continue to look like a decent investment opportunity, then why not Telmex? It has better growth prospects and seems to be choosing the same avenues as BT (eg: TV) in an emerging market that I am bullish on. Sound ratios and people talking about an almost monopoly like status? ker-ching."

A 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 scour the bargain bin for yourself, read what our CAPS community thinks, or even chime in with your own opinions. Click here to get in the game.

Oh, and it's totally free -- an offer that even the deepest of value investors should never pass up.