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Everyone loves a bargain. Whether they're at a grocery store, the local flea market or the neighborhood car dealership, people inherently understand the benefits of great deals.
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."
With the help of the CAPS community, I've tried once again to find some cheap stocks for all of my stingy kindred spirits.
We ran a simple screen for five-star stocks -- the highest rating a stock can get in CAPS -- with EV-to-EBITDA (enterprise value to earnings before interest, taxes, depreciation and amortization) multiples below 10.
We used this metric, rather than the more common price-earnings ratio, to account for differences in each company's capital structure. This screen helps us zero in on statistically cheap stocks that, according to our CAPS community, have plenty of great reasons to trade at much higher levels.
The screen produced these stocks:
| Company | Industry | EV to EBITDA* |
|---|---|---|
Copper | 9.4 | |
Steel and iron | 9.0 | |
Oil and gas | 8.7 | |
Automobile manufacturing | 6.3 | |
Oil and gas equipment and services | 4.1 |
*Enterprise value to earnings before interest, taxes, depreciation and amortization
Nothing piques a sharp investor's interest as much as when the shares of a truly dominant company begin trending lower. Despite being down as much as 18% over recent weeks, Cleveland-Cliffs (CLF, news, msgs), the operator of North America's largest iron-ore mine, continues to receive strong support from our community. Out of the 123 CAPS All-Stars who've rated Cleveland-Cliffs, a whopping 122 are bullish.
Of course, the iron and steel sector, as a whole, has been taking a beating lately. In addition to Cleveland-Cliffs, worries over higher inflation and slower U.S. economic growth have sent steel stocks such as U.S. Steel (X, news, msgs) and Gerdau Ameristeel (GNA, news, msgs) reeling over the past few weeks. But judging by our community's sentiment, this short-term sector weakness may provide a turnaround opportunity for prospective Cleveland-Cliffs investors.
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So, when you combine all of those bullish characteristics with seemingly attractive price multiples, you find that this company might be worth a closer look.
What bargain hunters are saying
CAPS All-Star "qasimodo" loves Cleveland's global appeal."(This) company holds an exclusive position in providing iron ore for processing," the All-Star wrote. "Traditionally based out of the Great Lakes region, it has been expanding its influence to be a global player with its recent purchase of iron-ore companies in Australia and Brazil. Due to the continued expansion and modernization efforts of China, I expect that this commodity will continue to be in demand for the next decade."
Stock Chart (Year)
Cleveland-Cliffs
As always, what we say here isn't meant to be taken as a formal recommendation. We want only to generate ideas that you might find worth further research. If you'd like to scour the bargain bin for yourself, read what the CAPS community thinks or even chime in with your own opinions. CAPS is totally free -- an offer that even the deepest of value investors should never pass up.
This article was reported and written by Brian D. Pacampara for The Motley Fool. At the time of publication, he owned none of the stocks mentioned.
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