Cheap stocks are hard to find after six years of a bull market -- and it's even harder to find those that are both cheap and safe.
Nonetheless, there's a set of screens that I run pretty much every week as a matter of habit. One of my favorites is based on the methodologies of late famed investor Walter Schloss, who ran up a nearly 50-year track record of beating the market by substantial margins.
Schloss simply bought companies that traded below book value with little or no debt and held them until Wall Street realized their value. He also liked companies where insiders had some "skin in the game," owning a meaningful amount of stock in the companies that they ran. Lastly, he preferred stocks that were trading near multiyear lows.
All in all, Schloss' style was pretty simple, and it's easy to replicate if you have the patience and discipline to do so.
I didn't find a lot of stocks that passed my Schloss screen, but here's a look at some:
The largest stock on the list is the Starwood Waypoint Residential Trust (SWAY), a real estate investment trust that owns a lot of single-family rental houses.
Starwood is about to merge its portfolio with privately held Colony American Homes to create a portfolio that will include more than 30,000 rental properties. The new company will still trade under the ticker symbol SWAY, and the dividend will remain the same -- currently offering a 3.28% yield as of SWAY's close yesterday at $22.90 a share.
Single-family houses have underperformed in the past few years even as overall home prices improved, so there would appear to be some undiscovered value in Starwood's stock. Shares trades at about 85% stated book value, as well as at a massive discount from management's estimated net asset value of $35.37 per common share.
Schloss would also have a heavy energy presence in his portfolio, but not as much as you might expect.
It's true that the energy sector has been 2015's worst performer, thanks to collapsing oil prices. So, drillers and exploration-and-production companies definitely showed up on my Schloss screen. Oil-services firms have also followed energy prices lower.
But while many energy companies are cheap, there are few that are cheap and safe. Those that are have reasonably financed balance sheets, and you should consider buying a starter position in them just in case we get some sort of fast-moving "V" bottom. (I consider that unlikely, but not impossible.)
You can later double down if we see an unexpected quick additional decline in energy prices, which will hit the "Oil Is a Once in a Lifetime Opportunity!" crowd hard with big margin calls.
The oil-related stocks that my Schloss screen likes include Geospace Technologies (GEOS), which is my latest buy.
Business is horrible right now for Geospace, which designs and manufactures seismic instruments and equipment for the oil-and-gas industry. Things probably aren't getting better any time soon, as exploration has slowed to a crawl and will stay that way until oil prices recover.
Still, GEOS looks like it has the financial strength to survive until that happens. The firm has no long-term debt and a double-digit current ratio. Insiders also own more than 16% of the shares, so they have a vested interest in keeping the company afloat until the stock recovers.
Gulf Island Fabrication
My Schloss screen also likes another one of my favorite oil-related stocks -- Gulf Island Fabrication (GIFI).
GFI is a leading fabricator of offshore drilling-and-production platforms, hulls and deck sections. Needless to say, no one is buying a lot of that right now, but the company appears to have enough cash to survive. It has no debt, and GFI shares are currently trading at only around 50% of book value.
Carbo Ceramics and Tesco
Lastly, my Schloss screen favors Carbo Ceramics (CRR) and Tesco (TESO).
Both are cheap and have strong balance sheets, although I haven't yet convinced myself to pull the trigger. That's because the two firms are heavily involved in fracking and unconventional drilling, and I just haven't been seen enough full-blown panic in that segment yet to be comfortable buying.