6 Cheap Stocks That Outperformed The S&P 500 For 10 Years That Are Now Worth Reviewing

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 |  Includes: AAPL, CAM, FMC, HFC, HP, NOV
by: Follow My Alpha

If you're not an index investor then regardless of your strategy your goal is the same as everyone else: achieve alpha for your portfolio by stock picking in some form.

Now if you're thinking, "Well I invest with mutual funds," here's is a quick dose of cold-hard reality.

On average every mutual fund holds roughly 300 different stocks. Basic portfolio theory states that holding this many stocks all but guarantees you won't outperform any stock market index over the long term.

As well, it destroys the general advantages of diversification because you're spread too thin.

Therefore, you're all but guaranteeing that you're paying a professional investor to simply underperform the market on your behalf.

So what should any investor who doesn't index be doing right now?

Start doing due diligence on stocks that have a clear history of "winning" for their shareholders as Charlie Sheen once put it so bluntly.

To help you get started on this journey of independent due diligence I identified 6 undervalued stocks that have a few interesting, distinct common denominators among themselves.

What are these common denominators you ask?

First, while you can't time the market, you can time when you buy individual stocks. The stocks that I have identified are currently trading at a lower Forward P/E valuation than the S&P 500.

Why does this really matter?

It quickly implies two simple yet important points to investors:

  1. From a valuation standpoint these stocks offer investors more potential future earnings power than the S&P 500 index at lower cost.
  2. Should these stocks rise & match the S&P 500's current Forward P/E valuation they'll provide an investor with a positive return & at a lower price-multiple valuation that the S&P 500 can't match.

Still, a finding a cheaper stock than the S&P 500 isn't impossible.

That's why I singled out stocks that are not only cheaper than the S&P 500 but also have the distinction of outperforming the S&P 500 over the last decade. Of course past performance is no guarantee of future performance.

Still in my view, what it does indicate is a strong & consistent track record of providing shareholder value even after going through extreme market events such as the Financial Crisis of 2008.

The third point that makes these stocks worth reviewing is the fact that their 1-year revenue growth numbers are in excess of 30%. That's some serious sales growth in what is anything but a booming domestic or global economy.

Profitability trends are important too but any Income Statement makes it immediately clear why sales is the quarter back when it comes to any company. Simply put, without sales let alone sales growth, the subject of profitability becomes largely moot because sales are the lifeblood of any organization.

What I have identified today are 6 stocks that have a clear history of providing alpha returns to investors over long term, offer future earnings at a lower price-multiple valuation than the S&P 500, and strong sales growth that indicate these stocks have the fundamentals to keep potentially offering alpha returns moving forward.

This list is ranked from highest to lowest by market capitalization:

1. Apple Inc. (AAPL)

Apple designs, builds, and sells mobile communication and media devices such as the iPhone and iPad. The stock has a current market cap. of $473.656B, trades with a Forward P/E valuation of 11.74.

As well, it has grown the top line, revenue, by 44.48% and currently holds a Current Ratio of 1.88 on its Balance Sheet.

The company has risen by 9015.54% over the last 10 years while the S&P 500 only increased by 134.68% over the same period.

Upgrade Note:

In October 2013, Cannacord Genuity reiterated a BUY rating for the stock and increased the price target from $560-$580.

2. National Oilwell Varco, Inc. (NOV)

National Oilwell Varco offers equipment and components for oil and gas drilling and production; oilfield services; and supply chain integration services to the upstream oil and gas industry. The stock has a current market cap. of $35,001B, trades with a Forward P/E valuation of 12.74.

As well, it has grown the top line, revenue, by 36.72% and currently holds a Current Ratio of 2.71 on its Balance Sheet.

The company has risen by 1388.84% over the last 10 years while the S&P 500 only increased by 134.68% over the same period.

3. Cameron International Corporation (CAM)

Cameron International provides flow equipment products, systems, and services all over the world. The stock has a current market cap. of $15.838B, trades with a Forward P/E valuation of 14.29.

As well, it has grown the top line, revenue, by 22.17% and currently holds a Current Ratio of 2.30 on its Balance Sheet.

The company has risen by 855.53% over the last 10 years while the S&P 500 only increased by 134.68% over the same period.

Upgrade Note:

In October 2013, Robert W. Baird initiated a rating of Outperform for the stock with a price target of $75.

4. FMC Corporation (FMC)

FMC Corporation is a chemical company that provides solutions and products for agricultural, consumer, and industrial markets. The stock has a current market cap. of $9.980B, trades with a Forward P/E valuation of 14.97.

As well, it has grown the top line, revenue, by 10.97% and currently holds a Current Ratio of 1.72 on its Balance Sheet.

The company has risen by 743.32% over the last 10-years while the S&P 500 only increased by 134.68% over the same period.

5. HollyFrontier Corp. (HFC)

HollyFrontier Corporation operates as an independent petroleum refiner and marketer in the United States. The stock has a current market cap. of $8,978B, trades with a Forward P/E valuation of 8.16.

As well, it has grown the top line, revenue, by 30.13% and currently holds a Current Ratio of 2.37 on its Balance Sheet.

The company has risen by 316.69% over the last 10 years while the S&P 500 only increased by 134.68% over the same period.

Upgrade Note:

In October 2013, Howard Well upgraded its rating of the stock from Sector Perform to Sector Outperform with a price target increase from $41 to $47.

6. Helmerich & Payne Inc. (HP)

Helmerich & Payne, Inc. engages in the contract drilling of oil and gas wells. The stock has a current market cap. of $8,145B, trades with a Forward P/E valuation of 12.61.

As well, it has grown the top line, revenue, by 23.90% and currently holds a Current Ratio of 2.96 on its Balance Sheet.

The company has risen by 630.64% over the last 10 years while the S&P 500 only increased by 134.68% over the same period.

Downgrade Note:

In October 2013, Argus downgraded this stock from a BUY to HOLD.

I hope this short list of stocks helps investors as they seek to learn about stocks that have the potential to continue outperforming the S&P 500 moving forward.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This information is not to be considered direct and or indirect investment advice to any individual or organization. Everyone should always do their own independent due diligence before making any investment decision.