7 Cheap Stocks That Make the Grade
The markets are moving higher again today, driven by the U.S.–China trade talks that are going on. Today, President Donald Trump is meeting with Vice Premier Liu He as the talks wrap up for the week.
I’m not sure why the markets are so keen on the talks when no one really has any idea what is actually being accomplished. But we have a pretty good idea that both sides with come out saying they prevailed in the end, and the market will rally on that.
Then again, there’s always the old adage that you buy the rumor and sell the news, so maybe that’s what’s going on. There’s also the fact that the Chinese are very patient and resolute negotiators. They aren’t going through major national elections next year.
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Whatever the case, stocks across the board are in rally mode, eclipsing the losses that they suffered in the fourth quarter of last year.
But there are still some bargains in very hot industries that won’t be rattled one way or another by the U.S.-China negotiations. Below are seven cheap stocks that make the grade — low price-to-earnings ratios and Portfolio Grader A ratings for earnings.
America First Multifamily Investors LP (ATAX)
America First Multifamily Investors LP (NASDAQ:ATAX) buys, holds and sells federally tax-exempt federal revenue bonds that are issued to provide construction for multifamily residential properties. Those properties include public housing, student housing, senior living centers and the like.
ATAX is set up as a limited partnership rather than a real estate investment trust (REIT). However, both recognize income the same way and are obligated to distribute net profits to shareholders. ATAX does this through its hefty 7.5% dividend.
This is a very consistent business and ATAX is an interesting blend of a financial company and a REIT. And given the fact that both sectors have been on a tear recently, it’s no surprise ATAX is up 18% year to date. But even if that growth cools, you’re still sitting on a generous dividend that significantly outperformed the broad market all by itself.
Ladder Capital (LADR)
Ladder Capital (NYSE:LADR) is another unique company that operates as a REIT but is focused on the commercial real estate financial services side more than owning and operating properties.
Again, it has a giant dividend that around 9% and with the special, larger dividend it issued at the end of last year it put the total dividend around 12.5%.
The compelling thing about this sector moving forward is, the rollback in financial regulations that has been underway in the past few years are allowing more financial institutions to lend again.
Since the 2008 market crash, regulations have made it difficult for banks to lend without jumping through significant hoops. This made it tough for local and regional players to compete with larger institutions. Those roadblocks are now gone for the most part and LADR should be a big beneficiary as property sales ramp up.
CVR Energy (CVI)
CVR Energy (NYSE:CVI) is a holding company that operates two divisions. One is a petroleum refiner and the other is a nitrogen fertilizer maker.
The energy patch has been on a roll this year and that has certainly helped CVI; the stock is up 29% year to date and 34% in the past 12 months. Add to that its nearly 7% dividend and you have pretty compelling combination.
What’s more, even after the run it has had, CVI stock is still only trading at a forward P/E around 13.
You can be sure that the expanding economy means that CVI’s energy division will reap the benefits of increasing demand. And if there’s a deal with China, then fertilizers will boom because farmers will be back in action.
CVI was founded in 1906, which means it has seen a lot of ups and downs over the years, and it has found a way to flourish through them all.
Denbury Resources (DNR)
Denbury Resources (NYSE:DNR) is a unique exploration and production (E&P) energy company. It operates in the Gulf Coast and Rocky Mountain regions of the U.S. It has been an upstream player since the 1950s.
At this point, its focus is recovering oil from fields and wells that have seen previous extraction and use its proprietary CO2 enhanced oil recovery (EOR) technology to get the remaining reserves from the wells.
The science behind getting oil out of the ground is a bit more complicated than many outside the oil industry realize. And a some point it becomes expensive for many E&Ps to get every last drop of reserves out of wells.
That’s where DNR comes in. It can buy a property with proven reserves cheaply and get the remaining oil out with its CO2 EOR.
Its forward P/E is a mere 3, yet the stock is up 26% year to date. But remember, this is a volatile sector, so this won’t be a steady ride.
Deckers Outdoor (DECK)
Deckers Outdoor (NYSE:DECK) is footwear maker that owns some of the biggest sporting brands in the business. The stock is up 51% in the past 12 months and up nearly 13% year to date. And it’s still trading at a forward P/E of 17.5.
Its lifestyle brands include UGG, which originated in 1978 when an Australian was in California and built the brands signature boots using shearling linings and leather exteriors. It became a wildly popular brand a couple decades ago and now the line has grown extensively, along with its new spinoff Koolaburra by UGG.
Its performance brands include Hoka One One, which are now the distance and training shoes of choice to serious runners, or people who want to look like serious runners. Teva was the pioneer outdoor sandal company that was launched in 1984 and continues to be one of the top outdoor footwear brands around.
Finally, Sanuk is another Southern California brand that embodies a simple look with quality materials. Its name is derived from the Thai word that means “fun.”
It also has a wholesale division that sells directly to department stores and others that want to brand their own products.
As long as the consumer is strong, DECK will continue its run.
DSW (DSW)
DSW (NYSE:DSW) is the other end of the shoe niche. It has more than 500 stores across the U.S. as well as an e-commerce website.
Essentially, DSW is a big-box shoe store, carrying scores of name brands and even more styles of those brands. It’s a one-stop shop for shoes, especially if you have a family and the kids and adults all need new shoes.
As the economy continues to expand, consumers are more comfortable spending. But they have also learned that they can find name brands without paying premiums in stores like DSW. And that habit hasn’t changed.
It’s also why DSW blew out Q3 earnings expectations (released in mid-December) and saw same-store sales and revenue blow past last year’s numbers. It raised guidance for the year as well. It’s no surprise the stock is seeing upgrade from analysts.
The P/E is one of the highest in the group, but once Q4 and year-end numbers are in, its current P/E won’t look so high. And on top of it all, it delivers a respectable 3.5% dividend.
Photronics (PLAB)
Photronics (NASDAQ:PLAB) is a Connecticut-based tech firm that has been around since 1969.
It specializes in a process called photomasking. Essentially, what that means it makes a photographic pattern that is used to build integrated circuits and semiconductor wafers. Chipmakers then shine an ultraviolet light through the mask and they build chips and circuits from it.
These days, PLAB specializes in photomasking for flat panel displays and has plants Europe, Taiwan, Korea and the U.S. It’s a very specialized sector and PLAB carries a market cap around $700 million.
But PLAB has a solid book of business and now that tech is back, PLAB should continue its run. The stock is up 36% in the past 12 months but is trading at a PE of just 17. There’s plenty of headroom here, especially as tech firms are back in the markets good graces.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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