Three Stocks at Bargain Levels

 | May 09, 2014 | 3:00 PM EDT  | Comments
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Stock quotes in this article:

kyo

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glpw

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omg

As everyone else is trying to trade around the earnings and economic numbers, I have been patiently digging around looking for new ideas. I have not yet gotten that one big opportunity this earnings season, but there some stocks that missed expectation and are creeping toward bargain levels. Since the market is just 1.5% off its all-time highs, I am not in any rush to buy these stocks but they are on the top of my watch list right now.

This morning, I ran a screen in search of newly created perfect stocks. These are issues that trade below book value, are profitable and pay a dividend. In addition, each owns more than they owe and has a current ratio above 2.

Being cheap is not enough to make a perfect stock. There also has to be a margin of safety in the balance sheet to qualify. The screen produced an interesting list of stocks that have fallen to bargain levels and are worth consideration by long-term value investors. But most of them are trading around 90% or so of book value and I like an 8-handle in the price-to-book ratio before I pull the trigger.

Kyocera (KYO) is a Japanese conglomerate that makes industrial components, as well as telecommunications and information equipment, and sells them worldwide. Its products include applied ceramic products, such as residential and commercial solar power generating systems, solar cells and modules, medical and dental implants, mobile phones and LED lighting systems; the company also engages in real estate related activities. The company sells a lot of products that will see increased demand in the long run from Asia's growing middle class.

The solar business could eventually be a huge profit center for the company as well. I thought the recent report was solid -- decent sales growth across all divisions -- but the Street disagreed and the stock is 10% lower this year. The stock is trading at 87% of book value and it won't take much of an additional decline for me to jump in and open a position, regardless of what the market is doing.

I have been watching Global Power Equipment (GLPW) for some time now and the stock is finally moving my way -- it's down 16% in the past month after the company missed estimates. The company makes gas turbine auxiliary products and electrical solutions for power generation and cogeneration, as well as oil and gas processes and industrial markets. Its nuclear services segment offers construction, modification and maintenance services, and is involved in the decontamination, decommissioning and demolition of nuclear projects.

Its energy services segment provides routine maintenance, repair, and capital project services to the industry. The company has a rock solid balance sheet and pays a 2.26% dividend right now. The stock is trading at 97% of book value, so I hope analysts keep lowering their estimates and funds and institutions dump the stock so I can buy it at my price.

OM Group (OMG) is just about at my purchase point. The company may have disappointed Wall Street -- and the stock has been weak, falling almost 20% so far this year -- but I like its businesses. It has a division that sells industrial magnets to customers in the automotive systems, electrical installation technology, industrial, retail, and renewable energy markets. The battery technologies segment offers batteries, battery management systems and battery-related research and devices for defense, space, medical, commercial and grid energy storage markets. It also sells specialty chemicals developed from cobalt, zirconium, manganese, calcium, potassium, rare earth, zinc and other metals that are used in coatings, composites and tires. The company also sells chemicals for specialty use in the electronics industry.

OM Group just reinstated the dividend for the first time since 2002 and the stock yields 1.03%. Management believes that the way the company is currently positioned will reduce the volatility of results and increase the predictability of earnings has positioned OM Group to pay a cash dividend while continuing to fully pursue their strategic growth plan. At 80% of book value, the stock is cheap enough to buy right now.

We have not seen a lot of inventory creation this earnings season but some stocks may disappoint analysts and fund managers who are starting to get excited from the long-term value investors' point of view.

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