Cheapest 5-Star Stocks

Yesterday’s article showing nine cheap momentum stocks proved popular. A slew of requests came in for the cheapest stocks rated 5 stars by Morningstar.

Cheap can be defined in different ways, so I’ll go through various filters on Morningstar’s 5-star stocks.

Here are the five cheapest by share price:

  • Entorian Tech (ENTN) … $1.20
  • Replidyne (RDYN) … $1.49
  • Sanmina (SANM) … $1.64
  • Golfsmith (GOLF) … $1.78
  • Leadis Tech (LDIS) … $1.80

Here are the five most below their 52-week high:

  • MannKind Corp. (MNKD) … 85% below 52-week high
  • Vanda Pharma (VNDA) … 83% below 52-week high
  • USEC Inc. (USU) … 80% below 52-week high
  • Replidyne (RDYN) … 80% below 52-week high
  • VeriFone (PAY) … 78% below 52-week high

Here are the five cheapest by price/sales ratio:

  • Rite Aid (RAD) … 0.0 P/S
  • Asbury Automotive (ABG) … 0.1 P/S
  • Group 1 Automotive (GPI) … 0.1 P/S
  • Ingram Micro (IM) … 0.1 P/S
  • Lithia Motors (LAD) … 0.1 P/S

Here are the five cheapest by forward price/earnings ratio:

  • Golfsmith (GOLF) … 4.0 forward P/E
  • Horizon Lines (HRZ) … 4.4 forward P/E
  • NightHawk Radiology (NHWK) … 5.8 forward P/E
  • Tesoro (TSO) … 5.9 forward P/E
  • Lithia Motors (LAD) … 6.0 forward P/E

Here are the five cheapest by price/earnings to growth ratio:

  • Golfsmith (GOLF) … 0.26 PEG ratio
  • Tesoro (TSO) … 0.28 PEG ratio
  • NightHawk Radiology (NHWK) … 0.29 PEG ratio
  • Allied Irish Banks (AIB) … 0.36 PEG ratio
  • Tessera Tech (TSRA) … 0.36 PEG ratio

Let’s look a little more closely at the five stocks appearing on more than one of the valuation screens above, indicating their being cheap by multiple measures.

Golfsmith retails golf and tennis equipment via the internet, a catalog, and 70 stores across the United States. The good news is that the aging population in the U.S. should continue to make golf popular, and the company can probably add another 40 stores. The bad news is that the slow economy and high energy and food costs leaves people with less to spend on golf. The bad news won’t last forever, though, making this look like a nice recovery candidate.

Lithia Motors retails new and used vehicles. The new ones, all 28 brands, are sold at 107 L1 stores mostly in the western U.S. The used ones are sold at three used car dealerships called L2. The good news is that the company’s no-haggle approach and other customer-friendly mandates should create growing popularity. The bad news is that more than a third of its vehicle revenue is from Chrysler, Ford, and GM models, brands that, sadly, will probably continue losing market share to Asian competitors. Still, maybe the American companies will get their acts together some day and, besides, Lithia could always change its brand mix.

NightHawk Radiology provides radiology interpretation services to health-care providers. It has operations in Australia, Switzerland, and the U.S. In the U.S., its direct clients include more than 700 radiology groups covering over a quarter of all hospitals. The good news is that NightHawk’s cost-saving structure brings subspecialist knowledge to clients that wouldn’t otherwise be able to afford it, and that the U.S. suffers from a shortage of radiologists. The bad news is that the competition with Virtual Radiologic has resulted in price cuts that look set to stay.

Replidyne is a biotech company focused on anti-infective drugs. Its lead candidate is Orapem, a Phase III oral antibiotic, and it’s also working on a Phase I topical antibiotic that will treat staph infections in hospitals. The good news is that growing bacterial resistance has created a demand for stronger anti-infective drugs, and that if Orapem is approved it will be the first U.S. beta-lactam stronger than penicillin, and that beta-lactams comprise 70% of the pediatric antibiotic market. The bad news is that Orapem hasn’t been approved and that’s cost Replidyne its partner, Forest Labs, which was planning to provide both development and marketing for the drug. As with so many biotechs, this one looks like a crapshoot on FDA approval.

Tesoro owns six oil refineries in the western United States, with a total capacity of 560,000 barrels per day, and it sells fuel at more than 500 West Coast retail outlets under the Tesoro and Mirastar brands. The good news is that oil ain’t goin’ away and Tesoro is one of the bigger independent refiners in the U.S., plus its focus on the western part of the country puts it close to the booming California market. The bad news is that refining is super competitive and Tesoro’s operation can’t hold an oil-soaked candle to even Valero Energy’s capabilities, much less Exxon’s.

With some additional research, you might find that one of these stocks has a place in your portfolio.

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