Should You Buy Stocks with P/Es Under 5?
Welcome to Episode #88 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
This week, she turns her attention to dirt cheap stocks, regardless of their Zacks Rank.
In the past, she has only screened for Zacks #1 (Strong Buys) or #2 (Buys) but why not see how many purely cheap stocks are out there?
Zacks covers about 4400 stocks with the Zacks Rank so the screen was covering that universe.
The screen covered all stocks with P/Es at or below 5.0.
52 stocks came through the screen and it included foreign companies, retailers, energy companies and drug companies. Of the list of 52 stocks, Tracey narrowed it down to just 5 names.
5 Stocks With P/Es Under 5
1. Lannett (LCI - Free Report) is a generic drug manufacturer that is facing growing competition. It’s investing in partnerships and licensing deals in order to diversify its revenue base. The company has a new CEO and new names in other leadership positions. But the stock has fallen 37% over the last year and now trades with a forward P/E of just 4.8.
2. Emerge Energy Services (EMES - Free Report) is a $218 million market cap niche energy company that mines, produces and distributes silica sand. It lost $0.12 last year but is expected to make $1.38 in 2018 as the energy industry has turned the corner. If you want to know more, tune into the earnings call on May 1. It has a forward P/E of just 4.8.
3. Roadrunner Transportation Systems, Inc. is a transportation and logistics services provider headquartered in Illinois. It’s a micro-cap stock with a market cap of just $88 million. Shares are trading under $5. It recently restated 2015 and 2016 and refiled the first three quarterly reports of 2017. Revenue in the first 3 quarters last year was up 3.3%. It continues to see rate improvement after a challenging year last year. It’s dirt cheap, with a forward P/E of only 2.1.
4. GameStop (GME - Free Report) is still a huge brick and mortar retailer, with 7200 stores worldwide. The holiday quarter was solid with comparable store sales rising 12.2%. But fiscal 2018 comps are expected to be flat to down 5%. And earnings are expected to decline 8.1% year-over-year. It’s only trading at 4.4x.
5. Micron (MU - Free Report) has been on virtually every episode of the Value Investor Podcast the last few months because it’s dirt cheap AND it has the fantastic fundamentals. Analysts continue to raise estimates on this Zacks Rank #1 (Strong Buy). Earnings are expected to rise 121% in fiscal 2018. And while investors are worried about fiscal 2019, estimates are rising for that year too.
The There’s a Reason for a Low P/E
A P/E under 5, when the S&P 500 is trading with an average P/E of 17.5, and earnings are expected to be a record in 2018, means that Wall Street is basically ignoring these companies.
The reason may not always be one you want to hear.
Usually stocks with extremely low P/Es are cheap for a reason. There may be a problem with the business or management.
Occasionally, however, there is a true value superstar which simply has a low P/E.
But buyers of super low P/E stocks better do their homework.
Caveat Emptor, as they say.
What else should you know about the super cheap stocks?
Find out on this week’s podcast.
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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec and she also hosts the Zacks Market Edge Podcast on iTunes.
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