This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Really Cheap Stocks Set to Rebound, Fund Managers Say

The cheap stocks have proved rewarding. During the past five years, the Aegis fund returned 5.9% annually, outdoing 95% of small value funds, according to Morningstar.

Barbee starts by screening for small-cap stocks that sell for less than book value. Before the financial crisis unfolded, about 120 names qualified for his list. But now there are 360 candidates, since investors remain wary of deep-value stocks.

Barbee aims to find unloved companies with decent cash flows. After buying, he typically holds for several years, waiting for the stocks to rebound. Most often Barbee is right, but he can take shareholders on a rough ride. In the turmoil of 2008, the fund lost 51.4%. Aegis bounced back sharply in 2009, returning 91.4% and outpacing 99% of peers for the year. "During the financial crisis, most of our holdings continued to have stable businesses, but the stocks fell because shareholders were liquidating their portfolios," he says.

A holding Barbee likes is American Greetings (AM), a maker of greeting cards. The shares have been dropping because investors worry that traditional cards will be replaced by electronic messages. But Barbee argues that demand for the company's wares will remain solid. "If somebody's father dies, it is tacky to just send an e-mail," he says.

He also likes Aircastle (AYR), which leases aircraft to airlines. The stock trades for about half the value of the aircraft that the company owns, says Barbee.

Another strong-performing fund is Hotchkis and Wiley Value Opportunities. The portfolio has a P/E ratio of 7. During the past five years, the fund returned 8.2% annually, outdoing 98% of mid-cap value funds. Portfolio manager David Green looks for depressed stocks that have predictable cash flows. He scored big gains with Tree.com (TREE), the operator of online mortgage company LendingTree.com. Green began buying in May 2009, and he sold after the stock soared. "During the financial crisis, people thought no one would ever get a mortgage again, but we thought that the business was just cyclically depressed," he says.

The fund has scored big gains in the past year with unloved financial stocks. Current holdings include American International Group (AIG) and Citigroup (C).

AllianceBernstein Discovery Value holds a mix of mid-cap and small stocks. The portfolio has a P/E of 11. During the past five years, the fund returned 4.3% annually, outdoing 81% of mid-cap value funds. The portfolio managers are keen on technology companies. "In the current environment, you can find beaten-down stocks with very strong balance sheets," says portfolio manager James MacGregor.

A holding is Amdocs (DOX), a business software provider. The stock has a forward P/E of 10 and a big stash of cash.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
TSLA $250.32 -0.45%
YHOO $42.90 -0.39%
AAPL $131.07 -0.54%
FB $79.25 -1.10%
GOOG $534.85 -0.91%

Markets

DOW 18,051.98 -74.14 -0.41%
S&P 500 2,115.48 -5.31 -0.25%
NASDAQ 5,093.5570 -4.4190 -0.09%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs