3 dirt-cheap stocks to buy now

With all the talk of shares being overvalued after this year's massive rally, you'd think there'd be almost no bargains out there.

By Zacks.com Jul 29, 2013 10:45AM

Arrow Up (© Photodisc/SuperStock)By Tracey Ryniec


With all the talk of stocks being overvalued due to the massive rally this year, you'd think there'd be almost no dirt-cheap stocks. You know what I'm talking about. I mean really cheap. Stocks with single digit price-to-earnings ratios and price-to-book ratios that scream value.


But what if I told you that there are more dirt-cheap stocks out there than you realize. And as an added bonus, these dirt-cheap stocks also have a Zacks rank of #1 ("strong buy") or #2 ("buy"), which means they have rising earnings estimates.


Too good to be true?


Nope. You just have to know where to look.


Dirt-cheap stocks are not what you think

To find the dirt-cheap stocks in this market you have to get over your obsession with tech stocks, social media stocks and the well-known, expensive retailers.


Our dirt-cheap stocks are found outside of the mainstream. They're not the most followed on Stocktwits and they're not mentioned (usually!) at cocktail parties.


But that's what it takes to be a value investor. Sometimes you have to dig beneath the surface to find the stocks that the market is disregarding.


How to find dirt-cheap stocks

To find dirt-cheap stocks I first looked for a price-to-earnings ratio under 10. The S&P 500 ($INX) is trading at 15.5 times its price-to-earnings ratio. So a price-to-earnings ratio under 10 would be cheap by comparison.


I also screened for a price-to-book ratio under 3.0. When a company has a price-to-book ratio under 3.0, it is usually considered undervalued.


I then added the important ingredient of a Zacks rank of #1 ("strong buy") or #2 ("buy") to make sure the earnings estimates are rising.


Remember, just because these stocks are dirt cheap fundamentally doesn't mean the shares aren't soaring along with the rest of the stock market. But share price doesn't determine cheapness. Earnings, and what you are willing to pay for them, do.


The 3 dirt-cheap stocks are:

  1. JP Morgan Chase (JPM)
  2. Lexmark International (LXK)
  3. MetLife (MET)

JP Morgan Chase (JPM)

Even though the financials have been one of the hottest sectors of the first half of 2013, there is still value to be found there. JP Morgan Chase is one of the largest full-service banks in the United States. It has already reported earnings and is expected to grow earnings by 14% this year on the back of a strong mortgage business.


Shares are trading near the 52-week high, but there is still a lot of value to be found.


Forward price-to-earnings ratio = 9.5

price-to-book ratio = 1.08

Zacks rank #2 ("buy")


Lexmark International (LXK)

Lexmark makes printers but has expanded into digital content and software. It recently announced it was selling its Inkjet business. In the second quarter, if you exclude Inkjet revenue, revenue rose 4%.


Shares soared to new 52-week highs on its July 23 earnings report. But, despite the hot stock price, it is still cheap.


Forward price-to-earnings ratio = 9.5

price-to-book ratio = 1.8

Zacks rank #2 ("buy")


MetLife (MET)

Everyone knows of MetLife from its Snoopy advertisements. It provides insurance, annuities and employee benefit programs to about 90 million customers worldwide. It is scheduled to report earnings on July 31.


I know I sound like a broken record, but once again, shares are at 52-week highs. Still, the stock is cheap.


Forward price-to-earnings ratio = 9.0

price-to-book ratio = 0.8

Zacks rank #2 ("buy")


Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Value Investor services. You can follow her on Twitter @TraceyRyniec.


More from Zacks.com

Tags: JPMLXKMET
35Comments
Jul 29, 2013 12:06PM
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Come on; why is it that these "experts" write about hot stocks as those stocks hit their 52 week highs? Where was this article when JPM was $34 a year ago? Or Lexmark, Huh?

 

Articles such as these, a year behind where they should have been, give the impression they are trying to "make" the market, or gin up the price further to cover their own bets.

Jul 29, 2013 12:24PM
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You say that JP Morgan Chase is a good buy, although it "is trading near the 52-week high." Actually, it's trading at a 10-year high. It may go back farther than that, but that's as far as your charts goes.

 How can it be a sound financial move to buy a stock that's at its highest in a decade? No where to go but down, right? Even if there is an infinitesimal chance of it continuing its upward move, why take the risk?

  I'm an investing novice. So perhaps I just don't get it.

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Buy High and hope it goes higher.  Sounds like wire house advice to me!!
Jul 29, 2013 1:14PM
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Worthless article.  First, what does "dirt cheap" mean to this author.  To the average person the cost of these stocks is NOT cheap by any stretch of the imagination, and would limit the number of share they could purchase. Where is the money to be made?  Second, they are all near their 52 week highs and likely have nowhere to go but down. So where in the world is the value in that??  There is no "value to be found" in these stocks right now, and certainly no value to be found in this article.  One word, "Cheap".

 

Jul 29, 2013 1:15PM
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What the author forgot to factor in is the historical and industry P/E's for these companies.  Some companies, like big oil, traditionally have P/E's under 10.  In fact, none of these 3 stocks have had a P/E over 10 since 2010.
Jul 29, 2013 2:38PM
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"To find dirt-cheap stocks I first looked for a price-to-earnings ratio under 10. The S&P 500 () is trading at 15.5 times its price-to-earnings ratio. So a price-to-earnings ratio under 10 would be cheap by comparison."

Here are the current PE's for the three stocks listed in this article...
JPM: 9.31
LXK: 18.14
MET:23.02

Only one of the three meets this fools own criteria! Current PE and Forward PE are two completely different valuations and the only one that I give a flying [ph]uck about is the current. Nice article douchebag !
Jul 29, 2013 2:58PM
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"Our dirt-cheap stocks are found outside of the mainstream."

JPM, LXK, and MET are outside of the "mainstream"?
Jul 29, 2013 2:01PM
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I will never buy a bank stock as long as I live!  I don't care if it is at a 53-week low and pays a 20% dividend.  It amazes me that a company in the business of managing other peoples money can be so bad at it!  Citi BoF AIG, the list does on...  I lost my **** on Citi and then they hit me with a 1 for 10!

Then they got to take my tax dollar and repair themselves.  Then they refuse to lend me money!!!

Sad...where corporate greed has gone!  Sad where the Fed Gov has gone!

Jul 29, 2013 2:20PM
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Only an idiot would buy high.  That doesn't say much for the writer promoting that either.

 

Jul 29, 2013 1:42PM
Jul 29, 2013 12:15PM
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This is a plug for Dirt cheap ammo and survival supplies?

Jul 29, 2013 2:14PM
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the gamblers are wanting to know when the Fed is going to give them their next 'fix'...
Nov 8, 2013 7:01AM
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All these stocks are good, but ...buy the strongest stocks that don't show great sell volumes on their maximum at the end of this intermediate cycle towards the beginning of December. You can take a look to my forecast graphic that explain what I mean. Sincerely, Fredrick -  
Nov 8, 2013 7:00AM
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All these stocks are good, but ...buy the strongest stocks that don't show great sell volumes on their maximum at the end of this intermediate cycle towards the beginning of December. You can take a look to my forecast graphic that explain what I mean. Sincerely, Fredrick -  
Jul 29, 2013 3:44PM
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AS AN EXAMPLE, just looked at about 10 positions out of about 24-25 we hold..

 

P/E's of : 15, 14, 10, 23, 7, 4, 6, 8, 12 and 11.

That's an average of about 11.0;   With the 23 being a Gold miner.

But P/E's aren't everything that is important.

Some are forward P/E's others are not...The lowest actual was 3.30 (not listed)

Jul 29, 2013 3:18PM
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A possible good "rule of thumb" for starters is stick to some historical averages...

I like P/Es under 20....15-16 are better and under 10s probably pretty damn good.

Think the S&P avg.. right now is about 15-17, that in itself should be a clue.

 

Most of choices are in the 15 and under range, with a few speculative positions being higher.

Those are normally growth or sometimes higher risks stocks.

Like mentioned before, there are a lot more indicators than just P/Es...

And each investor has to make choices, to what best fits their own goals or risk tolerance.

Jul 29, 2013 2:17PM
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Most people in my age group...Long since been retired; Are looking for fairly low risk stocks/equities with a reasonable dividend of 3.5 to 5.5%....With growth possibilities, being a bonus.

 

Low PEs and buy ratings, high Stk Sctr ratings are fine, but may only be a drum beating behind the scenes....A lot more indicators come into play along with historical and futuristic projections that are fairly solid.

As a self directed investor for several years, pretty much what we look for anymore, and I am not always interested in buying something at 52 week or 2-3 year highs...

Guess if I was really interested, I would be waiting for a dip or correction, and in some cases ex-dividend dates....

But beyond that and above I haven't really checked any of these out.

Jul 29, 2013 12:53PM
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KENNDOG:Apparently you didn`t see the huge profits JP Morgan came out with.Profits drive

stocks, not that crazy fiat conspiracy the bears keep crying about because they missed the

bull market.

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