Seven to Watch

Trading at 7x earnings, these stocks are all poised to outperform the market this year.

Who says there are no cheap stocks left? Sure, the stock market has soared, but there are still many reasonably priced stocks with good balance sheets and decent earnings prospects. In fact, I can recommend seven stocks that were selling for a mere 7x earnings as of Wednesday's close.

While these companies have visible problems -- otherwise they wouldn't be selling for a modest multiple -- I predict they will outperform the market over the coming year.

1. Lexmark (LXK), based in Lexington, Ky., makes computer printers and cartridges. But I believe most investors don't know is that the company pulls in less than half of its sales from the U.S. It sells in Europe, the Middle East, Africa and elsewhere. Plus, the dividend yield, at 5%, is rich.
2. C&J Energy Services (CJES), out of Houston, Texas, is best known for fracking (hydraulic fracturing) services for oil and gas drillers. The stock is cheap because people think the hottest part of the fracking boom is over. That may be, but if 2013 turns out to be the company's third-best year, as analysts predict, I still believe the stock is a good buy, as it is trading at 7x trailing earnings and 8x 2013 earnings.
3. CF Industries Holdings (CF), with headquarters in Deerfield, Ill., is a major producer of fertilizers. About 90% of its sales are to the U.S. and Canada. In the past five years, the company's earnings have grown rapidly, but analysts are expecting them to decline somewhat in 2013 and 2014, and to be flat in 2015. My view? No one knows that yet.
4. Cloud Peak Energy (CLD) of Gillette, Wyo., is a coal company with a stronger balance sheet than most (admittedly, that's not saying much). Like all coal companies, it is struggling because of competition from cheap natural gas. But I think coal will make a modest comeback in the U.S., and that demand for exports will be strong.
5. National West Life Insurance (NWLI) sells life insurance and annuities. The Austin, Texas-based company, run by CEO Ross Moody, makes most of its money from annuities. Growth has been slow, but the stock is extremely cheap, selling for about half of book value (corporate net worth per share).
6. My penultimate pick is Krispy Kreme Doughnuts (KKD), based in Winston-Salem, N.C., which has been on the comeback trail and might also be a takeover candidate. The company has moved from a loss to a profit, but its turnaround is still precarious. I have faith in its CEO, Jim Morgan, whom I consider a friend.
7. I have saved the biggest stock for last. Abbott Laboratories (ABT) based in Abbott Park, Ill., has spun off its drug operations into a new company, AbbVie. The slimmed down original company makes a wide variety of health care products, including nutritional products and medical devices. Analysts expect earnings to drop sharply at the slimmed down Abbott, making the recent P/E ratio of 7 somewhat deceptive. Still, this is a high quality company.

At the time of publication Dorfman and his clients had no positions in the stocks mentioned.