While two years ago I trolled for compelling stocks priced between $5 and $10 a share, this week I was intrigued by a different set of circumstances involving 10 as a benchmark.
For the longest time, the only stocks that ventured into single-digit price-to-earnings ratios were either peaking cyclical stocks or troubled equities making a pit stop on the way to oblivion. It's a little different now. With value stocks being beaten into deeper value situations, it's amazing to see the kind of companies being sold for a song these days. You have bona fide growing companies with pedigree. You have cash-rich gems that have stumbled, yet only grazed their knees in the process. You have forgotten darlings that shouldn't be left for dead just yet. Here are 10 stocks that caught my screening eye.
Jakks Pacific (NASDAQ:JAKK) -- If you think Jakks Pacific is a fading maker of once-trendy wrestling toys, you don't know Jakks. The toy company has widened its reach with new licensed product lines, and it has delivered. Earnings rose by 25% last year to $1.50 per share on a 9% gain in sales. That's just seven times trailing profits. And the company is looking for at least 10% gains in 2003 top and bottom lines as it rolls out even more new items, such as candy and a line of American Idol fashion accessories for girls. As a bonus, Jakks is cash rich and trading for significantly less than book value.
Meritage (NYSE:MTH) -- With interest rates at record lows and home prices at record highs, it's clearly a good time to be a homebuilder. But this is a highly cyclical business. That's why Meritage offers one nugget of a streak: 15 consecutive years of record revenue and earnings. The company earned $5.31 a share last year, a healthy 23% advance over 2001. It kicked off 2003 with a 43% spike in the value of its backlog of home orders, so it's well-positioned to blow out 16 candles this year. At just six times last year's earnings, and with analysts pegging 2003 earnings at $5.94 a share and $6.59 in fiscal 2004, Meritage may be a screaming bargain at less than five times next year's target -- though higher borrowing costs or deepening economic woes could quickly cool off the hot real estate market.
Orthodontic Centers of America (NYSE:OCA) -- Here's a company that helps you smile. As a provider of business services to 375 different orthodontists and pediatric dentists, Orthodontic Centers of America packs a bite. The company is two weeks away from announcing 2002 results, but if the first three quarters are any indication, there's a lot to like in this value stock fetching just eight times trailing earnings. The company produced $23.6 million in free cash flow through the first nine months of 2003, with double-digit gains in the top and bottom line. If analysts are right, the stock will become an even bigger bargain if it nails profit forecasts of $1.52 and $1.77 per share over the next two years, respectively.
Salton (NYSE:SFP) -- While Salton's cookware products may be kitchen staples, the company has had a harder time establishing a warm presence in portfolios. While it earned $1.92 a share in its first two quarters of fiscal 2003, it's expecting to add just $0.35 more to the bottom line over the last two fiscal quarters. Still, that implies a P/E ratio of just four. Too good to be true? Yes. Its highly leveraged balance sheet is a red flag.
Investment Technology Group (NYSE:ITG) -- Pitching equity trading services these days is like selling sunscreen in an indoor water park. With few folks buying and the sellers spent, trading volume has been thin. While Investment Technology Group earned $1.59 per share last year and $1.58 per share the year before, don't rush to write in $1.60 this year. The company concedes it will be difficult to grow earnings, unless the market bounces back. While the stock is trading at just eight times last year's showing, what 2003 holds is anyone's guess.
MTR Gaming Group (NASDAQ:MNTG) -- Want a gaming company with more than just a one-track mind? MTR owns the Mountaineer Race Track & Gaming Resort in West Virginia. A short drive from Ohio and Pennsylvania, the company faces limited competition. Once featured in our premium Motley Fool Select research product, the stock has struggled since the company warned of weakness at its slot machine operations. However, after selling a money-losing Reno property last month, MTR's finances will begin to look better. The stock may be worth a gamble here, now at just six times next year's profit target.
Group 1 Automotive (NYSE:GPI) -- While I resisted singling out General Motors (NYSE:GM) this time, it would drive me crazy if I didn't slip in one car play. Group 1 Automotive owns 73 different auto dealerships. Big-ticket items and high prices at the pump may not make up an ideal operating environment, but the company has been doing just fine. It earned $2.80 a share last year on $4.2 billion in sales. Group 1 has been working on its operating efficiency to the point that it's comfortable guiding investors to expect between $3.10 and $3.30 a share, even if sales don't pick up materially in 2003. Now, that's one driven company.
Right Management (NYSE:RHT) -- I wrote about Right Management three months ago, and the story has only gotten better. The company closed out the fourth quarter by growing earnings by 58%, and it's looking for earnings to grow by 15% to $1.80 this year. Why is the stock valued at just six and a half times the net income it expects to produce in 2003? Well, the fact that it has thrived in outplacement services has some wondering how Right will fare once the economy recovers. Little credit has been given to its gains in its talent management and organizational consulting business, which will flourish once companies start hiring again. Misunderstood, it seems that many think that Right is wrong.
Royal Caribbean (NYSE:RCL) -- While the cruising industry hasn't been roughed up as badly as the rest of the travel trades, there are swells ahead. After earning $1.72 a share last year and losing the buyout battle for Princess (NYSE:POC) to Carnival (NYSE:CCL), there could be some serious motion in the ocean for Royal Caribbean if war breaks out and potential cruisers choose to stay closer to home. Still, the company's stock has been beaten down to the point where it's yielding a healthy 3.9%, and, you have to admit, it's got some great television commercials out there right now.
ESS Tech (NASDAQ:ESST) -- Chip maker ESS rode the DVD trend, then fell off when competition in China proved fierce. It earned $0.80 a share last year, but that's history now that it's already looking at a loss in this year's first quarter. The company looks forward to gaining market share overseas and rolling out a new single-chip DVD product, but what I find really exciting is its $4.50 a share in cash and short-term investments. The stock is trading for just two bucks more than its hefty hoard of greenbacks. That should offer limited downside, while providing ample time for the company to get back on the growth horse again.
Rick Munarriz could keep going, but he has a hard time counting past 10. He's tempted by some of the stocks he has uncovered, but only owns shares in Right Management. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy .
