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Ten cheapest stocks on the market

techsm5

Give this robot a new polish! My Robot Portfolio is a hypothetical collection of ten stocks that I compiled each year starting in 1999. Over 24 years, it has had a cumulative return of 915%, compared to 373% for the Standard & Poor’s 500 index.

The ten stocks are selected by computer, not by judgment. They are the ten cheapest stocks on the market of all US stocks with a market value of $500 million or more, positive earnings, and debt that does not exceed company net worth.

By “cheap” I mean a low price/earnings ratio, which is the stock’s price divided by its earnings per share. A normal P/E ratio most years is around 15. Robot stocks this year have ratios of two or less.

The logic behind this approach is simple. Stocks are progressing beyond expectations. Low P/E stocks are unpopular stocks with obvious problems. Investors expect very little of them. Low expectations are easier to overcome than high expectations.

Fresh Selections

Here are the robot stocks for 2023.

GPT (TPG) is the cheapest, with a P/E ratio of one. Based in Fort Worth, Texas, TPG conducts leveraged buyouts and private equity. It rivals Blackstone
Bx
Carlyle Group
CG
and KKR
KKR
among others. The extremely low P/E ratio reflects unusual gains in asset sales four quarters ago.

Guild Holdings Co., a mortgage company based in San Diego, Calif., is the second cheapest with a P/E of less than two. Last year was good for mortgage issuance, but investors expect 2023 to be worse as rising interest rates discourage homebuyers.

Alpha & Omega Semiconductor Ltd. (AOSL) has a P/E below twice trailing earnings and six times estimated earnings for the current fiscal year, which ends in June. Based in Sunnyvale, Calif., the company manufactures power semiconductors used in phone chargers and other applications.

Matson

MATX
, of Honolulu, Hawaii, is a Pacific Ocean freight carrier. He has a P/E of less than two. Many shipping stocks are cheap because freight rates are rock bottom, but Matson has made profits in each of the past 15 years and has a decent track record.

Callon Petroleum Co. (CPE) is a mid-sized oil company based in Houston. Its stock has fallen 70% in the past five years and is selling for less than twice recent earnings. The company has posted losses in three of the past 10 years, including a huge loss in 2020. But profits have been strong over the past year.

Alpha metallurgical resources (AMR) has a solid balance sheet, with 86 times more cash than debt. It is a coal mining company with headquarters in Bristol, Tennessee, and mines in West Virginia and Virginia. The stock has more than doubled over the past year, but is selling at a P/E of less than two.

United States Steel Co. (X), of Pittsburgh, Pennsylvania, appears on this list for the second year in a row. The stock rose about 5% last year in a bear market and sells for twice earnings. The company, once one of the largest in the country, has struggled in recent years.

PBF Energy

PBF
is a refiner based in Parsippany, New Jersey. It produces gasoline, fuel oil and jet fuel, but you will never see a PBF gas station; its products are unbranded. The stock has surged over the past year, but is still selling at twice trailing earnings and five times estimated earnings.

chord energy

CHRD
, twice its earnings, is a Houston-based midsize oil company. It was formed by the merger last year of two struggling companies, Whiting Petroleum and Oasis Petroleum. Both had gone bankrupt during the great oil crisis of 2014-2020. It drills in North Dakota and Montana.

Ryerson Farm (RYI), headquartered in Chicago, distributes industrial metals in the United States and China. He had a great year 2022 but recorded three defeats in the last ten years. Any thaw in US-China relations would likely help that endeavor.

The record

The Robot’s average (average) return was 15.8%, compared to 8.3% for the Standard & Poor’s Total Return Index. The compound annual return was 10.1%, compared to 6.7% for the S&P.

Keep in mind that the results in my column are hypothetical and should not be confused with the results I get for clients. Also, past performance does not predict the future.

Robot shares last year fell 15.6% while the S&P fell 18.1%. The worst loser was Smith & Wesson Brands Inc. (SWBI), down almost 50%. The top winner was Genworth Financial
GNW
Inc. (GNW), up about 31%.

In 24 years, Robot stocks have posted gains 16 times and beaten the index 12 times. It is not an infallible “system”. Nothing is. But I believe the seriously disadvantaged stocks deserve a look.

.

techsm5

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