Fishing for Statistically Cheap Stocks

 | Sep 15, 2011 | 3:30 PM EDT
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As the saying goes, give a man a fish and he eats for a day, but teach him how to fish and he eats for a lifetime.

Unfortunately, investing can't be taught with one article or one book, but market declines can turn an empty lake into one stocked with fish.

What I can do is suggest a few investments that, statistically, look very cheap. You can decide which, if any, are worth fishing for. So instead of spending unproductive time trying to guess what next week's macro headline will be, use that time to fish for bargain stocks.

Value Line (VALU) is a name many investors, especially fundamentally driven investors, are familiar with. Its leading publication, The Value Line Investment Survey, is one of the most widely read independent investment research publications. The company flies under the radar -- no conference calls and no fancy presentations. Its business remains stable, but lacks the sizzle many investors like to see. As a result, shares trade for $12, or a price-to-earnings ratio of 3. The yield is super attractive 6.6% and the company boasts a market cap of $118 million, with no debt and $19 million in cash.

Superior Industries International (SUP) is a 55-year-old company that makes one product: aluminum wheels for automobile and light-truck manufacturers. More than 60% of its business comes from Ford (F) and General Motors (GM), while the rest comes from all the other major automakers. Naturally, auto demand is a principal driver of growth. Yet Superior's exposure to the world's major automakers, as well investments in markets such as Mexico and India, make the company a resilient business. Shares are trading for about $16.50, or 8x earnings. The company pays a yield of 4% and has paid a consistent dividend since 1984. The company is debt free and has $150 million in cash, equal to $5.50 per share, on the balance sheet.

Universal Insurance Holdings (UVE) is a property and casualty insurance company based in Florida. Its principle line is homeowners insurance. Even as home ownership rates have declined since the housing bubble burst, Universal has remained steadily profitable. While it is one of the three leading underwriters in Florida, UVE is also licensed in Hawaii, South Carolina, North Carolina and, recently, Georgia. The company boasts a market cap of $160 million with shares trading at $4, or 4x earnings. The annual dividend is $0.32 per share, or a yield of 7.9%. In what is currently a tough insurance cycle, UVE continues to make money. Its combined ratio is below 100%, and the shares trade at book.

With all eyes focused on the big, glamorous companies, these names go unnoticed. Instead of trying to catch the big fish, go after the smaller ones.

Happy fishing.

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