3 Cheap Stocks 1 Fool Is Buying Now

by: MyPlanIQ

Ilan Moscovitz scrapes the bottom of the pile looking for bargains. This follows the famous Buffett maxim "Be fearful when others are greedy. Be greedy when others are fearful."

He lists three stocks that he says are the insanely cheap and ones he claims to be buying for the real-money Dada portfolio he co-manages.


5-Year Trailing Earnings-per-share growth Rate

5-Year Estimated Earnings-per-share growth Rate

Price-to-Earnings Ratio

Ebix (NASDAQ:EBIX) 61% 17% 10.5
Supervalu (NYSE:SVU) (13%) 5% 3.1*
Yongye (NASDAQ:YONG) 40%** 10% 4.1
Median S&P 500 7.7% 11.2% 15.1

Data from Capital IQ, a division of Standard & Poor's.
*Price-to-free cash flow ratio.
**3-year growth.

It is worth reading the article to understand the caveats -- company stocks are not cheap for no reason and so caution is required.

The purpose of this article is to swallow the premise but then measure the returns against a benchmark set of dividend ETFs which are more steady. The comparison set are:

Asset Fund in this portfolio
REAL ESTATE ICF (iShares Cohen & Steers Realty Majors,
FIXED INCOME TIP (iShares Barclays TIPS Bond,
Emerging Market VWO (Vanguard Emerging Markets Stock ETF,
US EQUITY DVY (iShares Dow Jones Select Dividend Index,
US EQUITY VIG (Vanguard Dividend Appreciation ETF,
INTERNATIONAL EQUITY IDV (iShares Dow Jones Intl Select Div Idx,
High Yield Bond HYG (iShares iBoxx $ High Yield Corporate Bd,
INTERNATIONAL BONDS EMB (iShares JPMorgan USD Emerg Markets Bond,

Portfolio Performance Comparison

Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Retirement Income ETFs Tactical Asset Allocation Moderate 7% 81% 10% 88% 10% 71%
Retirement Income ETFs Strategic Asset Allocation Moderate 7% 67% 4% 17% 3% 16%
August 2011 3 Insanely Cheap Stocks -19% -45% 29% 52%

As far as this portfolio goes back, we can see that over a three year period, the returns have been good but there is a steep drop over the past year which preceded the current market turbulence. So this portfolio was in trouble early and so one has to be cautious as to whether there are problems with the companies that caused the precipitous dip.

Three Month Chart

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One Year Chart
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Three Year Chart
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Five Year Chart
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Full details

These three stocks give a wild ride. Of course, having just three stocks, you are going to have higher volatility for good or bad. For those that want to watch the markets closely, you might find something here but I think there are better alternatives. Whether these stocks are insanely cheap or for the insane to buy will be seen over the next few quarters.

I'm sticking with the diversified set of ETFs

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.