A “Smooth” Screen for Cheap Stocks

The concept of “smoothing” earnings is nothing new to value investors. Finding a company that has been thrown in the bargain bin after one or two bad years, with no regard for true (long-term) “earnings power,” has been the bread and butter of many great track records.

Yet, I’m surprised how often the “CAPE” ratio (cyclically adjusted price to earnings ratio), as it has come to be known, is applied to general market indexes while its application to individual stocks is largely ignored. This is somewhat ironic since, long before Professor Robert Shiller made the metric famous, Graham and Dodd were looking at the “average earnings” of individual stocks in their classic tome Security Analysis.

Now, admittedly, using a 10-year average P/E on raw data comes with a whole host of problems/issues, not the least of which are:

• A company with rapidly growing earnings may have an unfairly high CAPE (i.e. its earnings from 5-10 years ago may be incredibly small, and not representative of its current earnings power).
• A company with rapidly declining earnings may have an unfairly low CAPE (i.e. its earnings from 5-10 years ago may be too high and not representative of its current earnings power).

Yet, I would argue that most fundamental investors would want this type of “messy” data - an idea screen where there a lot of false positives, and where analytical ability can be used to pick diamonds in the rough (or is it nickels in front of bulldozers?). 

So, with that background, I decided to run a screen to find the stocks with the lowest current CAPE ratios. My criteria:

• All data is from Bloomberg as of March 12, 2015
• CAPE is defined as: Current Price / 10 Year Average Diluted EPS
• Note: Diluted EPS does not adjust out discontinued operations. This (good or bad) adds to the “messiness” of the data.
• Minimum market cap: $15 million
• Stocks traded on a U.S. exchange and domiciled in the U.S.

As usual, I have not scrubbed the data. There may be incredible inaccuracies. Please do your own research and due diligence.

Without further delay, what follows is a listing of the 100 cheapest U.S. stocks based on a 10 year CAPE.  Happy hunting!

Cheapest 10 Year CAPE Securities as of March 12, 2015
RANK	COMPANY	TICKER	CAPE	MARKET CAP
1	RADIOSHACK CORP	RSHCQ	0.30	$18,629,942
2	YASHENG GROUP	HERB	0.85	$74,446,728
3	FIRST MARBLEHEAD	FMD	0.85	$72,064,624
4	ITT EDUCATIONAL	ESI	1.49	$175,393,152
5	LIGHTING SCIENCE	LSCG	1.53	$65,083,476
6	OTELCO INC-A	OTEL	1.64	$15,022,044
7	SPECTRUM GROUP	SPGZ	1.90	$16,890,048
8	MILLER ENERGY RE	MILL	1.99	$59,692,124
9	MMA CAPITAL MANA	MMAC	2.01	$67,262,992
10	DOVER DOWNS GAMI	DDE	2.91	$37,511,552
11	HANDY & HARMAN L	HNH	2.94	$466,910,592
12	ALASKA COMM SYS	ALSK	3.26	$86,199,224
13	WEIGHT WATCHERS	WTW	3.58	$554,638,784
14	CREXENDO INC	CXDO	3.69	$26,036,280
15	MCDERMOTT INTL	MDR	3.74	$755,999,040
16	ENZON PHARMACEUT	ENZN	4.04	$45,949,388
17	APPROACH RESOURC	AREX	4.08	$270,270,208
18	CIM COMMERCIAL T	CMCT	4.20	$1,727,194,240
19	QC HOLDINGS INC	QCCO	4.54	$34,603,476
20	DIAMOND OFFSHORE	DO	4.76	$3,749,623,552
21	AEROPOSTALE INC	ARO	4.78	$292,753,408
22	AMBASSADORS GRP	EPAX	4.81	$42,097,752
23	BOOKS-A-MILLION	BAMM	5.08	$38,678,260
24	GULFMARK OFFSHOR	GLF	5.56	$369,037,760
25	NATURAL RESOURCE	NRP	5.63	$913,579,712
26	HARVEST NATURAL	HNR	5.84	$22,372,442
27	TIDEWATER INC	TDW	5.93	$1,136,976,640
28	WEBCO INDS INC	WEBC	6.09	$57,836,000
29	EMERSON RADIO	MSN	6.13	$35,268,780
30	FULL HOUSE RESRT	FLL	6.13	$28,126,254
31	COMDISCO HOLDING	CDCO	6.19	$25,986,734
32	DAWSON GEOPHYSIC	DWSN	6.20	$103,464,000
33	BP PRUD BAY-RTU	BPT	6.24	$1,260,460,032
34	MARATHON OIL	MRO	6.28	$17,352,826,880
35	MITCHAM INDS	MIND	6.28	$65,133,060
36	NEW ULM TELECOM	NULM	6.42	$40,300,540
37	FIRST INTER/MT-A	FIBK	6.51	$1,235,635,328
38	INTL SHIPHOLDING	ISH	6.53	$95,034,152
39	CNB CORP	CNBW	6.62	$83,050,352
40	PEABODY ENERGY	BTU	6.64	$1,584,323,456
41	INTERNET PATENTS	PTNT	6.73	$17,683,220
42	CRESTWOOD EQUITY	CEQP	6.88	$1,154,074,624
43	CONTANGO OIL & G	MCF	7.03	$429,474,080
44	FRIEDMAN INDTRY	FRD	7.10	$43,651,752
45	ROWAN COMPANIE-A	RDC	7.11	$2,378,658,816
46	PROSPECT CAPITAL	PSEC	7.13	$3,064,334,080
47	ADDVANTAGE TECH	AEY	7.17	$23,486,380
48	US ENERGY CORP	USEG	7.17	$34,633,812
49	INCOME OPP RLTY	IOT	7.38	$29,594,320
50	SAN JUAN BASIN	SJT	7.48	$604,516,096
51	INSIGNIA SYSTEMS	ISIG	7.49	$35,639,948
52	KOSS CORP	KOSS	7.64	$17,054,050
53	CASH AMER INTL	CSH	7.68	$700,230,464
54	MVC CAPITAL INC	MVC	7.71	$221,352,512
55	DENBURY RESOURCE	DNR	7.77	$2,746,093,312
56	AMBASE CORP	ABCP	7.80	$87,586,168
57	NORTHEAST BANCRP	NBN	7.92	$82,408,760
58	ALLIANCE SEMICON	ALSC	8.05	$26,603,548
59	ITT CORP	ITT	8.07	$3,643,640,064
60	UNIT CORP	UNT	8.11	$1,320,100,864
61	ANNALY CAPITAL M	NLY	8.16	$9,837,822,976
62	GUESS? INC	GES	8.30	$1,506,866,688
63	NL INDUSTRIES	NL	8.37	$347,595,776
64	INTERSECTIONS IN	INTX	8.39	$66,432,296
65	YUMA ENERGY INC	YUMA	8.40	$95,723,688
66	SERVOTRONICS INC	SVT	8.42	$15,312,430
67	COMSTOCK RES INC	CRK	8.43	$218,129,632
68	ATWOOD OCEANICS	ATW	8.50	$1,846,573,696
69	EMPIRE RESOURCES	ERS	8.62	$40,482,800
70	SCHNITZER STEEL	SCHN	8.84	$441,139,712
71	HORNBECK OFFSHOR	HOS	8.88	$693,716,864
72	EZCORP INC-A	EZPW	8.91	$578,700,544
73	ABERCROMBIE & FI	ANF	8.91	$1,462,987,520
74	JPS INDUSTRIES	JPST	8.96	$99,746,984
75	GEOSPACE TECHNOL	GEOS	9.09	$222,042,960
76	BRINK'S CO/THE	BCO	9.10	$1,302,278,272
77	APOLLO EDUCATION	APOL	9.11	$2,914,203,648
78	ACRE REALTY INVE	AIII	9.16	$27,079,310
79	US GLOBAL INV-A	GROW	9.19	$46,531,976
80	AVON PRODUCTS	AVP	9.39	$3,628,035,584
81	JOY GLOBAL INC	JOY	9.39	$3,851,165,952
82	MURPHY OIL CORP	MUR	9.46	$8,305,296,896
83	PATTERSON-UTI	PTEN	9.47	$2,538,122,240
84	EDUCATIONAL DEV	EDUC	9.59	$16,854,016
85	PARKER DRILLING	PKD	9.62	$362,480,576
86	OIL STATES INTL	OIS	9.65	$2,127,773,312
87	MESABI TRUST	MSB	9.73	$225,654,992
88	CAPSTEAD MORTGAG	CMO	9.76	$1,118,605,696
89	REPUBLIC BNCRP-A	RBCAA	9.84	$495,420,800
90	NATL PRESTO INDS	NPK	9.88	$401,178,720
91	VISKASE COS I	VKSC	9.89	$207,551,872
92	GRAFTECH INTL	GTI	9.97	$532,219,360
93	DYNEX CAPITAL	DX	10.21	$448,844,896
94	ARES CAPITAL COR	ARCC	10.23	$5,264,451,072
95	WINDSTREAM HOLDI	WIN	10.23	$4,676,486,656
96	GENCOR INDS INC	GENC	10.23	$92,623,472
97	RESOURCE CAPITAL	RSO	10.27	$612,742,720
98	AMPCO-PITTSBURGH	AP	10.33	$178,801,184
99	VALUE LINE INC	VALU	10.39	$153,571,392
100	OCWEN FINL CORP	OCN	10.52	$1,181,401,088

Disclosure:  Author may hold a position in securities listed in the table.


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