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Here's a list of low price to earnings stocks with "safe" Altman Z-scores

In order to choose stocks that are cheap but are at low risk of bankruptcy, we need a quantitative predictor of credit risk. Fortunately, the Altman Z-Score can help distinguish value investments from value traps.

The Altman Z-score places companies into three groups: "safe" (Z-score > 2.99), "grey" (Z-score between 2.99 and 1.81), and "distressed*" (Z-score < 1.81). This metric is surprisingly useful for identifying bankruptcy risk in the coming year. Atlman's method of segmenting companies uses fundamental (financial statement) data and market capitalization only. Beyond credit risk prediction, companies with higher Z-scores have been shown to outperform companies with lower Z-scores, in aggregate.

Altman Z-score was recently calculated for hundreds of companies with P/E multiples under 10 as of March 2012. Low P/E companies which scored in the "safe" zone are presented with below:

Ticker

Company

P/E

P/B

Altman Z-score

10-Year Average ROE

OME

Omega Protein Corp.

4.51

0.77

3.12

4.5%

CVG

Convergys Corporation

4.79

1.05

3.80

6.2%

LMLP

LML Payment Systems Inc.

5

1.16

4.37

4.4%

MSN

Emerson Radio Corp.

5.1

0.85

4.72

19.1%

DK

Delek US Holdings Inc.

5.28

1.28

4.16

11.0%

NX

Quanex Building Products

5.69

1.46

4.92

7.4%

SLI

SL Industries Inc.

5.78

1.33

4.43

4.1%

ESI

ITT Educational Services Inc.

5.85

10.06

8.33

93.3%

HFC

HollyFrontier Corporation

5.86

1.45

3.17

26.0%

WHX

Whiting USA Trust I

5.91

4.58

954.44

13.1%

GNI

Great Northern Iron Ore Properties

6.48

14.49

17.40

98.6%

PAAS

Pan American Silver Corp.

6.49

1.4

116.45

12.7%

SEB

Seaboard Corp.

6.83

1.13

5.35

14.6%

CMT

Core Molding Technologies Inc.

6.93

1.42

3.93

11.8%

PSE

Pioneer Southwest Energy Partners

6.99

3.8

6.16

28.4%

HNRG

Hallador Energy Company

7.09

1.58

4.14

8.3%

APL

Atlas Pipeline Partners LP

7.15

1.57

3.14

4.2%

VSR

Versar Inc.

7.21

0.84

4.36

7.2%

PCCC

PC Connection, Inc.

7.62

0.79

6.57

5.0%

VLO

Valero Energy Corporation

7.63

0.95

4.05

12.5%

FRD

Friedman Industries Inc.

7.67

1.13

7.77

11.9%

UPG

Universal Power Group Inc.

7.7

0.46

3.76

8.4%

GLPW

Global Power Equipment Group Inc.

7.85

1.82

7.37

7.6%

TSO

Tesoro Corporation

7.9

1.13

4.28

11.6%

KS

KapStone Paper and Packaging

8.02

1.78

4.00

7.8%

TNAV

TeleNav, Inc.

8.12

1.42

6.58

5.3%

BPI

Bridgepoint Education, Inc.

8.13

3.55

7.52

10.8%

TRU

Torch Energy Royalty Trust

8.19

1.61

33.17

24.0%

ARLP

Alliance Resource Partners LP

8.2

3.93

3.49

55.5%

SVT

Servotronics Inc.

8.2

0.99

4.74

8.0%

CVX

Chevron Corporation

8.21

1.8

4.57

20.2%

CF

CF Industries Holdings, Inc.

8.35

2.65

3.36

11.9%

NAII

Natural Alternatives International

8.43

1.21

6.34

4.8%

CRWS

Crown Crafts Inc.

8.45

1.18

5.40

5.7%

FRX

Forest Laboratories Inc.

8.45

1.63

6.28

23.0%

LXK

Lexmark International Inc.

8.53

1.8

3.14

26.6%

GME

GameStop Corp.

8.63

1.1

3.49

13.1%

AGCO

AGCO Corporation

8.73

1.69

3.64

5.7%

PERY

Perry Ellis International Inc.

8.78

0.76

3.00

8.1%

KRO

Kronos Worldwide Inc.

8.84

3.07

3.93

19.9%

HITK

Hi Tech Pharmacal Co. Inc.

8.93

2.13

11.24

12.6%

BBY

Best Buy Co. Inc.

8.95

1.58

3.28

21.3%

MEA

Metalico Inc.

9.04

0.99

3.29

17.1%

JCS

Communications Systems Inc.

9.14

1.14

7.18

6.1%

NUTR

Nutraceutical International Corp.

9.14

1.1

4.21

5.6%

DELL

Dell Inc.

9.2

3.49

3.52

48.7%

BDL

Flanigan's Enterprises Inc.

9.22

0.75

3.25

9.9%

GIII

G-III Apparel Group, Ltd.

9.31

1.47

3.51

8.1%

ANDE

The Andersons, Inc.

9.32

1.63

4.64

14.0%

CRDN

Ceradyne Inc.

9.34

1.07

4.32

17.0%

MANT

ManTech International

9.42

1.16

3.96

12.0%

AEA

Advance America, Cash Advance

9.56

2.26

5.49

34.5%

SFD

Smithfield Foods Inc.

9.94

1.06

3.46

7.5%


Surprisingly, several of the listed value stocks are large cap and mid cap household names. For example, you may have recently bought gas from Chevron Corporation which presently trades at a price-to-book ratio of 1.8, a price-to-earnings multiple of 8.2, and a price-to-sales multiple of 0.9 (trailing twelve months). Instead, you may have purchased gas from Valero Energy Corporation, a large cap stock that currently trades at a price-to-book ratio of 1.0, a price-to-earnings multiple of 7.6, and a price-to-sales multiple of 0.1. You may have seen GameStop in the mall. Its stock trades at a price-to-book ratio of 1.1, a price-to-earnings multiple of 8.6, and a price-to-sales multiple of 0.3. You may have purchased a printer from Lexmark International, a mid cap stock which trades at a price-to-book ratio of 1.8, a price-to-earnings multiple of 8.5, and a price-to-sales multiple of 0.6. You could have bought that printer at Best Buy. BBY shares trade at a price-to-book ratio of 1.6, a price-to-earnings multiple of 9.0, and a price-to-sales multiple of 0.2. Even after the recent rally, there remain interesting investment opportunities which are not obscure micro cap and nano cap stocks.

Regardless of fame, all the firms on this list are value buys that have a low probability of bankruptcy. A diversified portfolio of 30 or more of these stocks should offer attractive risk-adjusted returns. On an individual stock basis, additional research is warranted.

*Please read the disclaimer for this article and the Altman Z-score calculation.

Source: March's 53 Low Price To Earnings Stocks