Discover cheap stocks and wait until they rise before you sell them. Stock investing could be so easy but that’s only a dream. The hardest part is to find cheap stocks. Many investors say that stocks are cheap if the price to earnings ratio is low. But that's not exactly true. Additional factors are the expected growth and the capital efforts. I go a little step deeper and use the price to free cash flow in order to determine cheap stocks. The free cash flow shows the real earnings of a company because it includes the investments which are needed to grow and to keep the business running well.
Recently, I screened high yield stocks with a cheap price to free cash flow ratio (a ratio of <10). Because I am a nervous investor, I am scouting for safe stocks. First, the stock should have a market capitalization of more than $300 million in order to exclude the risks of low diversified und bad running business and second, the stocks must be less volatile than the whole capital market. This fact is covered by a beta ratio of less than one. 16 stocks remained of which 60 percent come from the financial sector. Here are my favorite stocks:
1. Annaly Capital Management (NLY) is acting within the diversified REITs industry. The company has a market capitalization of $16.1 billion, generates revenues in an amount of $3.2 billion and a net income of $2.0 billion. It follows P/E ratio is 5.8 and forward price to earnings ratio 6.5, Price/Sales 5.2 and Price/Book ratio 1.0. Dividend Yield: 14.4 percent. The beta ratio amounts to 0.31 and price to free cash flow 3.0.
2. National CineMedia (NASDAQ:NCMI) is acting within the marketing services industry. The company has a market capitalization of $800.2 million, generates revenues in an amount of $428.6 million and a net income of $31.4 million. It follows P/E ratio is 23.8 and forward price to earnings ratio 17.3, Price/Sales 1.9 and Price/Book ratio is not calculable due to a negative book value of $7.7. Dividend Yield: 6.1 percent. The beta ratio amounts to 0.99 and price to free cash flow 7.5.
3. Trustmark Corporation (NASDAQ:TRMK) is acting within the regional Southeast banking industry. The company has a market capitalization of $1.2 billion, generates revenues in an amount of $406.1 million and a net income of $106.6 million. It follows P/E ratio is 10.9 and forward price to earnings ratio 11.1, Price/Sales 2.9 and Price/Book ratio 1.0. Dividend Yield: 5.1 percent. The beta ratio amounts to 0.68 and price to free cash flow 8.1.
Take a closer look at the full table of 16 cheap high yields wit low beta ratios. The average price to earnings ratio (P/E ratio) amounts to 10.9 while the average forward P/E ratio is 9.0. The dividend yield has an average value of 7.6 percent. Price to book ratio is 0.8 and price to sales ratio 1.9. The operating margin amounts to 25.7 percent.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.