5 Top Stocks That Are Dirt Cheap
Value investors, unite!
Now is our time.
I follow Zacks Rank #1 and #2 value stocks every day for the Zacks Rank Value Buy. These are the creme de la creme of the value stocks.
The stocks that I'm uncovering right now are the cheapest I've seen in the last 6 months. It is not unusual to see a single digit P/E anymore. And, to top it off, they also have rising earnings estimates and attractive earnings growth (sometimes in the double digits.) For value investors, it's like being a kid in a candy store.
But don't settle for just any cheap stock. Pick the best. The way to do that is to combine both a low valuation with the Zacks Rank.
What's a 'low valuation'? Since a low P/E is the most common criteria value investors look for, I searched for stocks with forward P/Es under 10. I also wanted a low P/B ratio, which can also indicate value if it's under 3.0.
As you might imagine, many stocks in beaten down sectors like agriculture and energy fit the criteria. I winnowed it down to the top five stocks in a variety of industries. But given the stock sell off in May, there were plenty of other possibilities as well.
Five Top Stocks That Are Dirt Cheap
CF Industries Holdings, Inc.
Oil States International
AGCO
Owens-Illinois, Inc.
Tata Motors
1. CF Industries Holdings (CF)
CF Industries manufactures nitrogen and phosphate fertilizers. It is the largest nitrogen fertilizer distributor in North America with manufacturing facilities in the United States and Canada. It's been cashing in on the record North American farmer incomes which are coming from high commodity prices.
Zacks #2 Rank (Buy)
2012 Expected Earnings Growth = 9%
P/E = 6.9
P/B = 2.1
CF is dirt cheap as the fertilizers are really out of favor. It is the cheapest among its peer fertilizer companies.
2. Oil States International (OIS)
Oil States rents tools to producers to be used in completion and production of a well. It's a shale play. Oil States' rental tool division is focused on the Rockies, Barnett Shale, the Mid Continent and in the Fayetteville Shale oil producing regions and is growing in the popular Marcellus, Haynesville and Bakken shale regions.
Zacks #2 Rank (Buy)
2012 Expected Earnings Growth = 35.3%
P/E = 8.5
P/B = 1.6
Oil States hasn't missed on the estimate since 2007. What a streak!
3. AGCO (AGCO)
AGCO is another play in the agriculture sector only it makes the big equipment, like tractors. It sells 4 core brands in 140 countries.
Zacks #1 Rank (Strong Buy)
2012 Expected Earnings Growth = 24.1%
P/E = 7.4
P/B = 1.3
AGCO is cheaper than many of its competitors like Deere or CNH Global.
4. Owens-Illinois (OI)
Owens-Illinois is the largest glass manufacturer in the world and the first to use an automatic bottle making machine in production.
Zacks #2 Rank (Buy)
2012 Expected Earnings Growth = 21%
P/E = 6.8
P/B = 2.5
Owens-Illinois is a global company with European operations and customers. In the first quarter it had no clarity on the European situation. This will be something to watch in the second quarter, however.
5. Tata Motors (TTM)
Tata Motors is India's largest auto company. Founded in 1945, it is also the world's 4th largest truck and bus maker.
Zacks #1 Rank (Strong Buy)
2012 Expected Earnings Growth = 18.2%
P/E = 4.5
P/B = 3.5
Tata is the only one of the five to have a P/B ratio over 3. However, it also has a price-to-sales ratio of just 0.3. A P/S ratio under 1.0 also indicates value, so I decided to include Tata in the list. With that low P/E, it's cheaper than many of its peers, including Toyota, Ford and Honda.
Look For Opportunities
With stocks selling off, it's time for the value investors to shine. There are always opportunities to buy good companies when the bears come out to play.
But be smart. Buy companies with both value AND solid fundamentals. It may seem like finding these companies would be a needle in the haystack, but if you use the Zacks Rank to narrow the field, it's easier to uncover the hidden gems.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at @TraceyRyniec.
AGCO CORP (AGCO): Free Stock Analysis Report
CF INDUS HLDGS (CF): Free Stock Analysis Report
OWENS-ILLINOIS (OI): Free Stock Analysis Report
OIL STATES INTL (OIS): Free Stock Analysis Report
TATA MOTORS-ADR (TTM): Free Stock Analysis Report
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