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The search for cheap stocks can take two forms. You can search for true value, as far as price relative to earnings growth, which is the more traditional method.
However, you can also search for stocks that are cheap in terms of absolute share price. This may seem like a silly approach at first, but when you think about it, it makes a lot of sense.
Stocks that trade for low absolute share prices are often stocks that haven’t been discovered by the broad market. They are often Peter Lynch plays, with boring names, and so the share prices don’t reflect the company’s potential. In many cases, they may also be actual value propositions as far as price relative to earnings.
In this case, I’ve found four stocks trading below $25 that are all benefitting in some way from the economy coming off the financial crisis. None of these are sexy names, and that’s exactly the point.
Convergys Corp. (NYSE: CVG) is as boring a name and company as you can find. It provides customer management business process outsourcing solutions for communications, financial services, and technology markets. In other words, all the things that companies don’t like to do — such as customer service, customer retention, technical support, sales, back office, collections, and quality assurance – get outsourced to Convergys. It has capability for analytics, loyalty research, and profiling to optimize customer interaction.
The stock trades at $21, and only 12x earnings.
A cousin of mine once worked at Kforce Inc. (NASDAQ: KFRC) and helped it grow significantly during his time there. It remains a major player in the temporary staffing industry, which has seen terrific growth post-financial crisis.
The company specializes in placements for technology companies, finance and accounting, and government positions. These specialized areas have allowed Kforce to growth a very strong clip, with FY15 earnings set to increase 34%. The stock only trades at 16x estimates at a share price of $23.45.
In case you thought I was actually starting to highlight companies without boring names or businesses, fear not. Next up in RPX Corp. (NASDAQ: RPXC), which is a very unusual risk-management company. No, it doesn’t assess risk for insurance companies or security firms. It has a subscription-based risk-management solution that facilitates exchanges of value between owners and users of patents.
It’s a great model. The company acquires patents assets to offer clients with licenses to protect them from patent infringement lawsuits; and insurance services to small- and medium-sized businesses to cover certain costs of patent litigation.
Analysts forecast 16% long-term growth, putting today’s share price of $14.14 at 14x FY earnings of $0.95. But here’s the best part: It has $317 million in cash, no debt, and 54 million shares outstanding, or about $6 per share in cash. So it is effectively trading at only 8x earnings.
Vishay Intertechnology Inc. (NYSE: VSH) manufactures and supplies discrete semiconductors and passive components. The company has been around for 50 years and serves many industries, including industrial, computing, military, consumer, automotive, telecom, and medical.
Vishay has $1.1 billion in cash, offset by only $441 million in debt, giving it a net cash position of $4.50 per share. Thus, with a stock price of $14.15, you back out the cash and get the business for $9.65 per share.
That means it is trading at only 9.5x FY15 earnings estimates of $1.03, which is 11% higher than FY14. Analysts predict 13% long term growth, so here you have it – another value stock.
Crushing the Market 240%
The S&P 500 has had a great ride the last five years. But a small group of stocks has done even better—much better. In fact, they’ve beaten the market by an astounding 240%. These stocks have one thing in common…allowing them to double the returns enjoyed by titans like Warren Buffett. Get the whole story right here.