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Overview

In this article, I will list and review three cheap stocks that I think are currently worth a buy. I will focus on stocks that are currently priced at under $10. In determining why I find these stocks attractive, I will be looking at each company's financial performance, current valuation, recent trading activity, earnings and future outlook. Each of these three stocks pay dividends, but it wasn't one of the requirements I had when putting together the list.

Stock No. 1

LSI Corporation (NASDAQ:LSI) designs, develops and markets semiconductors throughout the world. The company has large storage and networking portfolios consisting of several products and solutions.

Financial Performance

Profit Margin (Trailing Twelve Months)5.69%
Return on Assets (Trailing Twelve Months)5.08%
Return on Equity (Trailing Twelve Months)11.90%
Revenue (Trailing Twelve Months)2.45B
Revenue per share (Trailing Twelve Months)4.42
Quarterly Revenue Growth (Year Over Year)-8.60%

LSI has seen sliding revenue this year, but it has been able to adjust and still remain profitable.

Current Valuation and Recent Trading Activity

LSI has a current price-to-earnings value of 15.6X and a price-to-book value of 3.7X with earnings per share of $0.49.

LSI is currently trading at $7.76, $0.40 shy if its 52-week high and $1.73 higher than its 52-week low. It is trading above both its 200-day moving average of $7.00 and its 50-day moving average of $7.31.

Earnings

LSI has exceeded earnings estimates in 6 of its 7 latest quarters (matching earnings in the 1 quarter it didn't exceed the estimate).

For Q2, LSI recently announced earnings of $0.11 per share compared to the $0.09 estimate. It issued in-line guidance for Q3, expecting earnings per share of $0.13 to $0.19.

Company Outlook

LSI still faces some uncertainty but I feel that it has made sound managerial decisions that will help sustain growth. The company has made it clear that returning shareholder value is of great importance.

Just days ago, LSI announced its first ever quarterly dividend of $0.03 per share with the inclusion that it expects to pay a regular quarterly cash dividend.

In addition to the dividend, LSI has returned $2 billion back to shareholders over the past six years through share repurchases, with an additional $356 million currently available for future share buybacks.

Although there is some risk associated with LSI's ability to increase its revenue, the company's ability to remain profitable and consistently beat earnings estimates in a bad economy tells me the management team is doing some things right. And with the company's strong commitment to returning to shareholders, I see LSI as a solid buy right now.

Stock No. 2

CryoLife, Inc. (NYSE:CRY) is a leader in the processing and distribution of implantable living human tissue for use in cardiac and vascular surgeries. It operates throughout the United States, parts of Europe, and Canada.

Financial Performance

Profit Margin (Trailing Twelve Months)6.79%
Return on Assets (Trailing Twelve Months)6.25%
Return on Equity (Trailing Twelve Months)7.30%
Revenue (Trailing Twelve Months)134.71M
Revenue Per Share (Trailing Twelve Months)5.01
Quarterly Revenue Growth (Year Over Year)9.20%

CryoLife has seen a steady increase in revenue over the past few years while increasing its net income over this time.

Current Valuation and Recent Trading Activity

CryoLife has a current price-to-earnings value of 21.9X and a price-to-book value of 1.5X with earning per share of $0.33.

CRY is currently trading at $7.23, $0.47 shy if its 52-week high and $2.28 higher than its 52-week low. It is trading above both its 200-day moving average of $6.26 and its 50-day moving average of $6.64.

Earnings

CryoLife has exceeding earnings estimates in each of the last five quarters. On Thursday, CRY reported earnings per share of $0.08 (2 cents higher than the average estimate of $0.06 cents per share).

The company issued guidance of earnings per share between $0.24 and $0.27 for fiscal year 2013.

Company Outlook

CryoLife seems to have a lot of positive things going for it right now. In it's 2nd-quarter report, the company stated product revenue growth of 9% year over year. The company has also had a few regulatory items work out in its favor. These include: 1) receiving conditional approval to being PerClot clinical trial, 2) receiving FDA PMA approval for new TMR handpiece, 3) receiving 510(k) clearance for next generation HeRo device, and 4) receiving CE Mark for HeRo Graft.

CryoLife raised its 2nd-quarter dividend 10% from $0.025 per share to $0.0275 per share and has indicated that a sustainable quarterly dividend is expected. During the first half of the year, CRY has purchased back 229,000 shares of common stock, showing a strong commitment to providing shareholder value.

With CryoLife's ability to increase growth through its new technologies, the company is well positioned for gains in both profit and cash flow. This should support increased dividends in the future as the company's current payout ratio sits at 23%. In my opinion, CRY is a solid buy at its current price.

STOCK No. 3

Xerox Corporation (NYSE:XRX) provides business process and document management services throughout the world. In this list of three companies I'm reviewing, Xerox is the oldest (founded in 1906) and also the most expensive (currently trading at $9.69 per share).

Financial Performance

Profit Margin (Trailing Twelve Months)5.49%
Return on Assets (Trailing Twelve Months)3.47%
Return on Equity (Trailing Twelve Months)10.08%

Revenue (Trailing Twelve Months)

22.24B
Revenue Per Share (Trailing Twelve Months)17.46
Quarterly Revenue Growth (Year Over Year)-2.70%

Xerox's quarterly revenue growth isn't impressive, but its ability to post quarterly earnings growth of 10% despite the poor growth in revenue is.

Current Valuation and Recent Trading Activity

Xerox has a current price-to-earnings value of 8.9X and a price-to-book value of 1.00X with earning per share of $1.09.

XRX is currently trading at $9.69, $0.31 shy if its 52-week high and $3.59 higher than its 52-week low. It is trading above both its 200-day moving average of $8.66 and its 50-day moving average of $9.40.

Earnings

Xerox has met or exceeded earnings estimates in each of its last seven quarters, beating estimates in each of the last three. For Q2, XRX reported earnings of $.027 per share, three cents higher than the estimate of $0.24 per share.

The company issued guidance for earnings of $0.24 to $0.26 per share for Q3 of this year, with an adjusted EPS of $1.09 to $1.15 for fiscal year 2013.

Company Outlook

Xerox has paid a consistent quarterly dividend of $0.0425 per share since 2008. This year it increased the dividend to $0.0575 per share. With a payout ratio of just 20% and operating cash flow of $533 million, the company's dividend appears safe.

XRX's revenue for Q2 increased 1% with service revenues up 5%. Considering services account for 55% of company revenue, this increase (as Donald Trump would say) is "huge."

Xerox recently completed the sale of its North American paper business and has entered into an agreement to sell its European paper business. It seems to me that the company is making the necessary changes required to concentrate on its core revenue streams (such as its platform of printers and multifunction devices and its document technology) and ensure that Xerox remains a profitable company for its next 107 years. I believe that Xerox is currently a solid buy and will definitely reward long-term investors.

Conclusion

With solid financials, strong management, and a commitment to shareholders, I feel that these three companies reviewed above (LSI, CRY, and XRX) are all solid buys at the moment. Each company provides a safe and possibly growing dividend and in my opinion has currently undervalued stocks.

Later this week, I will follow up this article with a second article related to three cheap stocks I feel should be avoided. I hope in the future to submit continuing "rounds" for each of the articles, reviewing additional cheap stocks that I think are currently "worth a buy" or "should be avoided."

Source: Cheap Stocks Worth Buying Now: Round 1