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These stocks are so cheap it’s FREAKY

Today we are going to be looking at cheap stocks, so let’s start by considering what makes a stock cheap. It is not, of course, the share price. A stock can be cheap at $500 or overpriced at $1; it all depends on what you are getting for the money you pay. The most common quick and dirty measure of this is the Price to Earnings Ratio, or P/E. If a stock has a low P/E, it means that you are getting a relatively high amount of earnings for the money you are paying.

But what exactly does that mean? What does it indicate?

It’s a question that is rarely asked, and even more rarely answered. The Street allows certain stocks to trade at low P/Es not because it has overlooked them, but frequently because the prevailing sentiment is that the company’s growth is unimpressive, or that it is on thin ice financially or legally. In other words, low P/Es mean pessimism while high P/Es mean optimism. When we look at growth companies, the trick is to find cases in which the high P/Es are justified, but when we look at value companies, the trick is to find cases in which the low P/Es are not justified.

Starting with low P/E companies, I’ve identified the five that seem most likely to exceed the Street’s low expectations based on a combination of internal corporate strategies and macroeconomic trends—by which I mean the many different clues, available if you know where to look, as to how people’s spending habits are changing. As always consider these ideas just that, ideas, and do your own research before making any investment decision.

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Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.