The Cheapest Stocks in 10 Major Sectors

Here are the cheapest stocks in 10 major sectors. To make my list, a stock must be currently profitable, have debt less than stockholders’ equity, sell for 15 times per-share earnings or less, and have a market value of $1 billion or more.

Call it the Cheapskate Portfolio.

I’m not a fan of tangled ownership structures but betting against Malone has usually been a bad idea.

Retail sector: In early April, I recommended GameStop Corp. (GME), which sells video games and game equipment. It is valued at just four times earnings because a lot of gaming is available on the Internet.

Nonetheless, GameStop is stubbornly hanging in at about $9 billion of annual revenue, and $3 a share or more in annual profits. With the stock selling for less than $13, I think it’s worth dancing on the edge of the cliff for a while longer.

Consumer staples sector: Bearing the cute symbol TWNK (for Twinkie) is Hostess Brands LLC, the maker of Hostess CupCakes, Twinkies, and the like. It took over from struggling old Hostess Inc. in 2013 and closed most of the old Hostess bakeries. The stock fetches eight times earnings.

Energy sector: Peabody Energy Corp. (BTU), the world’s largest coal producer (excluding government entities), filed for Chapter 11 bankruptcy in 2016 and emerged in 2017. Now the balance sheet looks okay and profits are respectable, though not great. The stock’s multiple: three.

Financial sector: Genworth Financial Inc. is the cheapest stock in the financial sector, selling for less than four times earnings. It was born in 2004 when General Electric Co. (GE) spun off some of its financial operations, especially insurance.

At the end of that year, Genworth shares traded for $27. As of April 20, they sold for $2.71, about the cheapest they’ve been since the financial crisis. Profitability is mediocre; still, a turnaround may be possible.

Health care sector: United Therapeutics Corp. (UTHR) is best known for medications to treat pulmonary hypertension. Wall Street regards this company as a one-trick pony, which is why the shares fetch only seven times earnings. If it can broaden its product line, there is room for gains.

Industrial sector: You can pick up EnPro Industries Inc. (NPO) for seven times earnings. It makes unglamorous products since as gaskets, air compressors, vacuum pumps and natural-gas engines. Growth has been slow but analysts predict a nice pick-up in the next two years.

Materials sector: Ternium SA (TX) stands out with a price/earnings ratio of less than nine. This steel producer has headquarters in Luxembourg, does business mostly in Latin America, and trades mainly on the New York Stock Exchange. Analysts look for a good year in 2018, followed by a flat 2019.

Technology sector: Most tech stocks are expensive. Not Micron Technology Inc. (MU), which trades are less than six times earnings. Its specialty is memory chips.

Micron is cheap in large part because it was heavily committed to chips for traditional computers, and less prepared to serve the mobile-device market. I feel that the problem has been addressed fairly well, both through internal development and through acquisitions.

Utilities sector: Only one meets my statistical criteria, barely. That’s PG&E Corp (PCG), the parent to Pacific Gas & Electric. It fetches 12 times earnings. I am unenthusiastic about the entire utility industry, including this stock.

Past performance

What would happen if you bought these stocks without doing any due diligence (not recommended)? Based on the past, you wouldn’t have done badly.

I’ve compiled a list of each sector’s cheapies each year from 2002 through 2006 and from 2013 to the present. One-year returns on the Cheapskate Portfolio have averaged 10.9 percent, just above the 10.8 percent average for the S&P 500 (based on ten years of data).

Three-year returns (based on eight years of data) have averaged 29.4 percent, versus 26.2 percent for the S&P 500.

By researching these stocks to see why they’re out of favor, and assessing their chances to bounce back, I think you can do better than that. At the moment, I am partial to Micron, Hostess, United Therapeutics and Ternium.

Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.

Disclosure: I own Micron personally and for most of my clients.

John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Mass. His firm or clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.