5 Stocks for Bargain Hunters

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By James Brumley

NEW YORK ( StreetAuthority) --It's no big secret how most stocks have been devalued during the past three months. Debt worries in Europe, combined with sluggish economic data in the United States (including a pesky unemployment rate above 9%) have had investors heading for the exit.

Bargain hunters have their eyes wide open looking for underpriced equities. What's a little obscured, however, is the fact that some of the market's strongest names are back under their deep lows seen in March of 2009 -- just before the market staged a 70% rally before stalling. Only this time, many of these companies are still quite profitable and are sporting dirt-cheap price-to-earnings (P/E) ratios. Investors looking for monster opportunities may want to start with these five ideas.

Staples ( SPLS)

At less than $15 a share, the office-supply retailer is trading right around its lows from the March 2009 bottom. Things are significantly different this time, though. For starters, despite the pessimistic assumptions that drove Staples from $23 in early 2011 to the current price under $15, earnings are still on the rise.

The company has earned $1.24 per share during the past four quarters, translating into a trailing P/E of about 12. With the exception of the plunge in September 2008, that's as cheap as we've seen shares in more than a decade. And just to reiterate the important point, earnings are still growing and are expected to do so again in 2012.

Gilead Sciences ( GILD)

At about $41 per share, Gilead Sciences is about 10% below its low closing price of $45.43 from March of 2009, though it's worth noting how this biotech name tends to trade independently of the market. Still, at a P/E of 12.3, Gilead shares are as cheap as they've been in years.

What's interesting here is how the company managed to defy the skeptics for so long. Gilead Sciences shares didn't go anywhere in 2009 and then took a big hit in 2010, mostly on fears of new legislation and worries about patent expiration.

Yet, earnings continued to increase, thanks to its very lucrative HIV drugs. Last quarter's record per-share earnings of 93 cents translated into trailing 12-month earnings of $3.32 per share, which is almost a record as well. It may be a tad soon to worry about Gilead just yet. Gilead is one stock David Sterman named as one of his favorite "forever stocks" in this article .

Bank of New York Mellon ( BK)

Banks haven't exactly been the easiest stocks to own of late, but the market may be throwing out the baby with the bathwater. While Bank of America ( BAC) continues to struggle (and attract the spotlight because of it), other banks are back into a groove and turning a profit again.

The Bank of New York Mellon is one of them. The regional bank is almost as profitable as it was in the heyday of late 2007 and early 2008, but shares are priced right around where they were in March of 2009. This is a stock you should look at more closely -- the upside could be significant.

Hewlett-Packard ( HPQ)

Yes, the personal computer giant is getting out of the PC business, leaving it only with printer, networking and service divisions. Given that the personal computer division was the biggest revenue generator last quarter, the announcement was not well received. Shares have plunged from $32 to lows under $22, well under the March of 2009 low price around $26.

While the selloff makes sense on the surface, this is a case where the market may have overreacted, not realizing there's a flipside to this coin. The PC business was a very low-margin operation, and the top and bottom lines for it have been struggling for a while. Moreover, with a P/E of only 6.3, the impact of the pending spinoff has been more than priced in.

Best Buy ( BBY)

Finally, though it's been riddled by red flags, Best Buy may finally be at a point where there's no room left to price in more bad news. The electronics retailer has already suggested holiday hiring will be modest this year, hinting at a modest expectation for holiday traffic. It's also considering the closure of a few stores in the U.K., and has opted to sell its Napster music service as well.

While the refocusing should ultimately be a healthy move, it's the "in-the-meantime" revenue adjustment that has pulled the stock from the $44 area late last year to the current price of about $25.

At a trailing P/E of about 8 and a forward-looking P/E (2012) of about 7, enough is enough already. Best Buy isn't going out of business; it's just optimizing its operation.

Risks to Consider: Bottom fishing with stocks is a little like trying to catch a falling knife -- sometimes you can get cut if you're not careful. The fact of the matter is, though, these stocks have been excessively beaten down. But this doesn't mean the market can't choose to push them lower. On the other hand...

Action to take: As difficult as it is to buy into a stock while it's falling, just bear in mind stocks were plunging in the first half of March in 2009 as well, and that was the best entry point to buy stocks of the past three years. The market rallied nearly 70% off of that low, barely looking back as it was doing so. In fact, it didn't look back at all until four months later, after a 25% rally was under its belt. Sometimes you just have to take the plunge and any of these stocks could be worth taking the plunge on.

>>To see these stocks in action, visit the 5 Stocks for Bargain Hunters portfolio on Stockpickr.

Also see:

3 Steady Chip Stocks for a Volatile Sector

The Safest Oil Stock to Buy Right Now...

These 4 Stocks May be Safer than U.S. Treasuries

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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