Consider These Bargain Stocks

 | Nov 09, 2011 | 2:00 PM EST  | Comments
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Stock quotes in this article:

winn

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kr

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wfmi

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svu

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nte

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usmo

Whether you want to invest in them or not, there are still some companies trading at dirt cheap stock prices. These businesses may be boring or off most investors' radar -- what makes them interesting is their current share prices relative to what you get to own and the future possibilities.

Many legendary investors have profited handsomely from buying statistically cheap businesses. Sir John Templeton profited from buying every stock on NYSE that was trading for $1 or less. The huge upside from the winners offset the losers that went bust. Warren Buffett in his early days bought "cigar butt" stocks: cheap stocks from businesses that had one or two good puffs left.

Having recently fallen back to $6 from $10, grocer Winn-Dixie's (WINN) shares are too cheap to overlook -- this will be especially true if the company succeeds in its turnaround strategy. After years of falling way behind to Kroger (KR) and Publix, Winn-Dixie is remodeling and rebranding its stores. If you visit the company's website and take a look at the pictures, the stores almost remind you of Whole Foods (WFMI) with their modern decor, larger produce selection and cleaner look. The company's balance sheet has nearly $2 per share in net cash. Tangible book value is nearly $12 per share, twice the current stock price. At an enterprise value (EV) of $247 million, the company is valued at 2x EV/EBITDA. Kroger trades at 3.2x tangible book and above 5x EV/EBITDA (earnings before interest, taxes, depreciation and amortization). The highly leveraged Supervalu (SVU) grocery chain has no tangible equity and trades for 4x EV/EBITDA.

Nam Tai Electronics (NTE) makes all the little yet essential electronic components for telecommunications and consumer electronic products. Its products are found in hundreds of items including cell phones, watches, tablet computers and medical equipment. Its products are sold all over the world. Nam Tai is a Chinese based company but not one of the new reverse-merger batch that has investors on edge. This company has been around for more than 35 years. Its most recent quarterly report was not pretty: Sales were down 15% and profits were down by more 80%. The shares trade for $5.80, the company has no debt, and it comes with $4.74 per share in net cash. So this stock is definitely worth a closer look.

USA Mobility (USMO) provides wireless solutions for the health care and government sectors. The company provides paging capabilities and similar networking abilities to medical professionals and government staff. While it seems like pagers and similar communication devices became extinct with the advent of the cellphone, these networks are extremely reliable and secure, which is a must for doctors, and other emergency personnel. Demand has been in decline for USMO, but the company continues to invest in complementary businesses. Even so, its current business continues to provide significant cash flow generation. The shares trade for $14, or 3x earnings. Free cash flow (FCF) has averaged above $70 million per year over the past three years, or about 4x EV/FCF. Management continues to return this cash to shareholders via the stock's 7.5% current dividend yield.

These candidates may or may not fit your portfolio set, but they clearly illustrate the availability of statistically cheap stocks in today's market. Whether they offer one last "good puff" worth a 25% one-time gain, or the possibility of greater recurring returns, these candidates and others like them should not be overlooked.

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