Stock Screen: Highly Rated Cheap Stocks

In a recent post, I posited that markets did not look cheap from either a valuation basis nor an economic outlook standpoint. However, that does not mean I stop looking for investment opportunities, only that the search may not be as fruitful as I would like.

So this week’s screen focuses on looking for cheap stocks. We don’t want just any old cheap stock — there would be a lot of trash to sift through. In this case, I’m using Standard & Poor’s STAR stock rating to filter out poor prospects. Don’t get me wrong: I am not endorsing S&P as a stock analysis tool and their process for assigning ratings is somewhat vague. It’s possible that S&P got their rating wrong on each and every stock. That’s why I do my own research on any interesting results (and recommend you do the same so see the disclaimer). The screen is simply an idea generator to identify attractive investment prospects.

Here’s the criteria for this week’s screen:

  • Exchange-listed stock
  • S&P rating >= 4 STARS
  • Price-to-book < 1.0x
  • Price-to-cash-flow < 10.0x


The screen yielded 14 names. I discarded financials or any stock that ran up 15%+ in the last 4 weeks, filtering out Allianz SE (AZ), Coventry Health Care (CVH), GulfMark Offshore (GLF), Mirant Corporation (MIR), Royal Caribbean Cruises (RCL) and Travelers (TRV). Unfortunately, I had to remove AerCap Holdings NV (AER) and Alexandria Real Estate Equities (ARE) due to lack of financial data in my databases but these stocks may warrant further scrutiny.

Readers can find the remaining stocks on my valuation spreadsheet, which details very rough intrinsic value estimates based on free cash flow.

All in all, I was happy with the results, which identified at least two stocks to add to my watchlist. The diverse results included a telecom, a utility, a chemical company, a construction materials company and a healthcare facility operator. Be aware that while price-to-book may be low, most of these stocks carry huge amounts of goodwill and/or intangible assets.

View results of the highly rated cheap stocks screen.

More on this topic (What's this?)
S&P Upside Could Be Restrained
S&P Could Shift To Consolidation Mode
Read more on S&P 500 (SPX) at Wikinvest

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