3 Low P/E Stocks for Your Watch List
William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Companies trading at low price to earnings ratios (P/E) are increasingly hard to come by as the stock market breaks new records day in and day out. The three companies listed below sport good fundamentals and prospects on top of their low P/E ratios.
The ingredients for wealth
Global manufacturer and supplier of starch and sweetener ingredients, Ingredion (NYSE: INGR) represents your so called “boring” company. It sells its products to beverage, food, pharmaceutical, and even corrugated cardboard companies. It fulfills a crucial need in an important industry and it possesses the fundamentals to show it.
Over the past five years Ingredion grew its revenue and free cash flow 93% and 410% respectively. This translated into a stock price expansion of 52% during that time, beating the S&P 500 return of 17%.
In addition, Ingredion only paid out 16% of its 2012 free cash flow in dividends. Currently, the company pays $1.52 per share per year in dividends translating into an excellent yield of 2.2%.
Increased demand from emerging economies as well as stable demand from mature economies will provide the catalysts for future top and bottom line growth. Despite all the excellent fundamental qualities and dividend yield the company’s P/E ratio still only calculates to 13, as of this writing, making this an excellent entry point for the prospective buyer.
Political drama = gun sales
All of the political drama surrounding gun control created a recent spike in demand for gun manufacturers like Sturm, Ruger & Company (NYSE: RGR). People worry about an increasingly limited availability of guns and ammo stemming from any law that may come from the current gun control debates. In fact, gun availability is currently limited from low inventory due to demand outstripping supply.
Over the past five years Sturm, Ruger’s revenue and free cash flow increased 214% and 122% respectively translating into a stock price return of 587% versus 17% for the S&P 500. This company’s stock sits on a low P/E of 13 as of this writing.
Looking ahead, demand for guns will remain strong as long as gun control talks continue to scare consumers into buying every available gun. However, heed caution in the short term. If fears subside then gun demand will pull back some translating into a temporary correction and giving you an even better opportunity to buy shares.
Learning and having fun…
LeapFrog (NYSE: LF) develops educational toys for young children. It operates under the guiding mission of delivering enriching educational experiences to children.
An improving economy combined with the mobile app craze translated into vast demand for LeapFrog’s products in 2012. Revenue increased 28% and net income more than tripled last year. Leapfrog sports a mid-single digit P/E ratio of 7 as of this writing.
As the economy continues to show recovery consumers with extra money to spend and the awareness of the need to provide their children with extra-curricular educational activities will spur demand for Leapfrog’s products. Be cautioned, though this is not a company to own during recession for its profitability closely correlates with the economy. The company’s bottom line stayed in the red during the financial crisis.
The low P/E ratios of these companies at a time of increasing market exuberance mean they deserve a place on your Motley Fool Watch List (Account sign-up required). Research them to decide if these companies deserve a place in your portfolio as well.
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William Bias owns shares in Sturm, Ruger & Company mentioned. The Motley Fool recommends LeapFrog Enterprises. The Motley Fool owns shares of LeapFrog Enterprises and Sturm, Ruger & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!