By Jeff Reeves @ MarketWatch

Opinion: 5 cheap stocks that aren’t value investing traps

Published: Apr 17, 2015 6:01 a.m. ET

While sentiment matters and headlines can change, there are few substitutes for good analysis that compares investment options objectively based on numbers and not narrative.

Lately, I’ve been looking for stocks that offer good value in a market that appears increasingly stretched. And I’ve found five stocks that look cheap — but unlike some of the dogs that have crashed thanks to failure, these picks are decidedly not value traps and have a lot to offer.

Each of these stocks trades at a lower earnings multiple than the market at large — which would be a forward P/E of 17.5 for the S&P 500 SPX, -1.24%  and 19.2 for the Nasdaq COMP, -1.84% These stocks also can be had at an attractive price/sales ratio, at least compared with the 1.8 reading for the S&P.

On top of that, I looked for stability in the form of plenty of cash on the books and a sustainable dividend as a hedge when the market is rocky. The result is a list of five surprising value stocks that look like bargains. Here they are, with the numbers to show my work:

1. Valero Energy

·       Market Cap: $29.6 billion

·       Cash and Investments: $3.7 billion million or, or 13% of market value

·       Price/sales: 0.42 based on a projected $71.2 billion in FY2015 sales

·       P/E ratio: 8.7 based on projected EPS of $6.60 in FY2015

·       Dividend Yield: 2.8%

It seems crazy to chase an energy stock in this environment. But while Valero Energy Corporation VLO, -2.56%   has underperformed in the last year or so, the stock has really been in a groove since its January lows, gaining close to 30% in just three months.

That’s because, in the words of Ben Levisohn at Barron’s, Valero “knows how to take lemons and make lemonade” and posted robust fourth-quarter earnings on strong product margins. Given this recent earnings success and extremely attractive valuation metrics, Valero could be worth a look before its first-quarter numbers hit at the end of the month.

2. Lexmark International Inc.

·       Market Cap: $2.7 billion

·       Cash and Investments: $934 million or, or 35% of market value

·       Price/sales: 0.75 based on a projected $3.6 billion in FY2015 sales

·       P/E ratio: 12.1 based on projected EPS of $3.61 in FY2015

·       Dividend Yield: 3.3%

Lexmark International Inc. LXK, -1.38%   is hardly a sexy name, and is most recognizable to investors from its laser printers. Admittedly, Lexmark stock has seen stagnant revenue in recent years, but profits are quite strong and the company is sitting on a nice pile of cash, with good operating cash flow.

You may be surprised to see that the stock is actually up almost 6% this year, and is up 90% since January 2013 vs. just 50% or so for the S&P 500 in the same period. Take this recent strength with a 3.3% dividend and you’ve got reasons to look at Lexmark. That dividend of 36 cents per share quarterly is sustainable at less than 40% of this year’s projected earnings, and should provide stability no matter what happens in 2015.

3. Cooper Tire & Rubber Co.

·       Market Cap: $2.4 billion

·       Cash and Investments: $552 million or, or 23% of market value

·       Price/sales: 0.79 based on a projected $3.1 billion in FY2015 sales

·       P/E ratio: 13.7 based on projected EPS of $3.06 in FY2015

·       Dividend Yield: 0.1%

You’re not going to get much income from Cooper Tire & Rubber Co. CTB, -1.98%   since the stock pays only a nominal dividend of 10.5 cents quarterly.  However, the company’s stock is attractive on a number of other valuation metrics and has a solid balance sheet. And the fact that vehicle sales are expected to be quite strong in 2015, hitting 17 million and marking the highest level since 2005 according to some estimates, bodes well for Cooper.

You can’t argue with the tape — Cooper stock is up 21% year-to-date in 2015 against a flat market, and the charts continue to look bullish as Cooper approaches its May earnings report.

4. R.R. Donnelley & Sons  

·       Market Cap: $4.0 billion

·       Cash and Investments: $528 million or, or 13% of market value

·       Price/sales: 0.34 based on a projected $11.8 billion in FY2015 sales

·       P/E ratio: 12.8 based on projected EPS of $1.57 in FY2015

·       Dividend Yield: 5.2%

R.R. Donnelley & Sons RRD, -2.72%   is a communications and public relations firm that has been charging higher in the last few years. Since January 2013, shares are up 126% vs. 50% or so for the S&P 500, and shares have tacked on 20% year-to-date.

Still, the valuation metrics are great despite this run, with low multiples on both sales and earnings. Furthermore, the juicy 26-cent dividend each quarter adds up to a hefty 5.2% yield. Though the payout is a majority of total earnings — at a 66% payout ratio — the company can comfortably sustain that dividend, especially considering it has more than $500 million on hand in cash and investments.

5. Emcor Group

·       Market Cap: $3.0 billion

·       Cash and Investments: $432 million or, or 14% of market value

·       Price/sales: 0.45 based on a projected $6.6 billion in FY2015 sales

·       P/E ratio: 16.8 based on projected EPS of $2.81 in FY2015

·       Dividend Yield: 0.7%

Electrical and mechanical construction company Emcor Group EME, -3.69%   is focused on nuts-and-bolts building and industrial services. But given the continued improvement in the U.S. economy, Emcor has been doing quite well lately with shares up 6% so far this year, outperforming the S&P 500 three-fold even after a mild earnings miss in its fourth-quarter report.

Emcor reports earnings next at the end of April. Though revenue has been relatively flat lately, the company has seen earnings growth in four of the last five quarters on a year-over-year basis. If Emcor can prove the miss in January was an outlier, it should power higher — and given the stock’s uptrend recently, Wall Street seems to think that’s a highly likely scenario.

About Mining Stocks @ The Fool

4 Mining Stocks Trading At Bargain Prices: Centamin PLC, Anglo American plc, Antofagasta plc And Lonmin Plc

Photo: Roy Luck. Cropped. Licence: https://creativecommons.org/licenses/by/2.0/deed.en

By Peter Stephens - Tuesday, 14 April, 2015

2015 has been a disappointing year for the mining sector, with the majority of its incumbents underperforming the FTSE 100 since the turn of the year. For example, Lonmin(LSE: LMI) and Anglo American (LSE: AAL) (NASDAQOTH: AAUKY.US) are heavily in the red this year, having fallen by 27% and 15% respectively, while Antofagasta (LSE ANTO) andCentamin (LSE: CEY) are well behind the FTSE 100’s 7% gain, with their share prices falling by 3% and rising by 2% respectively.

However, this could be the perfect time to buy them, with all four companies trading at very appealing share prices.

Growth Potential

While 2015 is expected to be a mixed bag for the four companies, next year is forecast to be much brighter. Certainly, commodity prices may fail to stabilise or improve, but efficiencies and rationalisation are set to have a considerable impact on the wider sector, thereby causing its outlook for 2016 to be relatively strong.

For example, Centamin is expected to see its bottom line rise by 28% next year, which is roughly four times the growth rate of the FTSE 100. Certainly, its forecasts may change somewhat between now and then, but its current valuation appears to provide investors in the stock with a very wide margin of safety. This is evidenced by its price to earnings (P/E) ratio of just 11.1, which when combined with its growth potential equates to a price to earnings growth (PEG) ratio of just 0.3. As such, Centamin’s share price could move much higher.

It’s a similar story with the likes of Antofagasta, Anglo American and Lonmin. Their bottom lines are set to rise by 29%, 35% and 380% respectively between 2015 and 2016. This puts them on PEG ratios of just 0.5, 0.3 and 0.2 respectively, all of which indicate that considerable capital gains are on offer and, perhaps more importantly, that disappointment on the earnings front is being priced in. In other words, wide margins of safety are on offer right now.

Risks

Clearly, all four companies are at risk from price weakness in their chosen commodity markets. This could cause write downs to their asset base, which would clearly impact heavily on their bottom lines and valuations moving forward. However, the outlook for the commodity markets is significantly better than has been its performance in recent years, with an improving global economy and the potential for Chinese stimulus likely to mean that pricing is more appealing in future.

And, even if commodity prices do weaken, the likes of Centamin, Antofagasta, Anglo American and Lonmin trade on such appealing valuations that, for long term investors, it makes sense to buy them now due to their very favourable risk/reward profiles.

Of course, they aren't the only companies that could boost your portfolio returns. However, finding the best stocks at the lowest prices can be challenging when work and other commitments get in the way.

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By Peter Stephens - Wednesday, 8 April, 2015

The last year has been incredibly difficult for the mining sector, with commodity price falls hurting the bottom lines of most of its incumbents. And, almost inevitably, the share prices of most mining stocks have fallen dramatically, with Rio Tinto (LSE: RIO) (NYSE: RIO.US), for instance, seeing its share price fall by 14% since April last year.

However, the tide could be turning for the sector, as evidenced by a recent surge in investor sentiment for Rio Tinto and, perhaps more acutely, for Centamin (LSE: CEY), which has seen its share price rise by 14% in the last few weeks alone. And, looking ahead, there could be more capital gains to come for both companies.

A Return To Growth

Of course, for Rio Tinto and Centamin, things are set to get worse before they get better. In Rio Tinto’s case, its bottom line is expected to fall by 36% this year as a 10-year low for iron ore continues to impact on its bottom line. However, the efficiency programmes being undertaken by the company, as well as increased production, mean that its earnings are set to rise by 22% next year. This puts Rio Tinto on a price to earnings growth (PEG) ratio of just 0.4, which indicates that its share price could move significantly higher.

Meanwhile, it’s a similar story for Centamin. Its net profit is due to drop by 37% this year, followed by a rise of 29% next year. Clearly, investors have started to look at its medium-term future, but even though its shares have risen strongly recently, Centamin still trades on a PEG ratio of just 0.3. This shows that there could be further gains ahead, with the company offering a very wide margin of safety at the present time.

Income Potential

In addition to their growth prospects, Rio Tinto and Centamin also offer excellent income prospects. As well as yielding 5.3% and 2.6% respectively at the present time, Rio Tinto and Centamin both have scope to increase dividends per share at a rapid rate. That’s because both companies have relatively modest payout ratios, which when combined with their stunning growth prospects means that their dividend yields could move much, much higher. For example, Rio Tinto has a payout ratio of 62%, while Centamin’s is even lower at 27%, thereby making them companies with significant dividend growth potential.

Looking Ahead

So, while recent months have been very challenging for investors in mining stocks, the future appears to be much brighter. And, with their combination of income, growth and value appeal, Rio Tinto and Centamin appear to be two stocks that are well worth buying at the present time.

Of course, finding stocks from any sector that are worth adding to your portfolio is a tough task, which is why the analysts at The Motley Fool have written a free and without obligation guide called 10 Steps To Making A Million In The Market.

It's a simple and straightforward guide that could make a real difference to your portfolio returns. As such, 2015 could prove to be an even better year than you had thought possible.

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