One of the hallmarks of improved investor sentiment is when folks are willing to pay ever greater premiums for equities in expectation of future profit growth. And since the market started rallying from its early March lows, it's clear that sentiment seems to be improving, at least in certain corners of the market.
One indicator of improved sentiment is the rise in forward price-to-earnings multiples. Forward P/E is derived by dividing a company's share price by analysts' average estimate for future earnings per share; for the 500 stocks in the Standard & Poor's 500 Index ($INX), this ratio has risen to 16 from 13 in March, according to The Wall Street Journal Market Data Group.
Such growth is a clear indication that investors are starting to shake off the shock of last year's meltdown and have regained some appetite for risk, says Hank Smith, the chief investment officer of equity at Haverford Investments in Haverford, Pa.
As risk appetite grows, Smith says, many bigger, "safer" shares have been left in the dust; that's keeping a lid on the Dow Jones Industrial Average ($INDU). The forward P/E on this bastion of the bluest of blue-chip stocks is less than 14, down from nearly 18 in March, according to Dow Jones Indexes. In other words, as the broader market has gotten more expensive, the Dow has become cheaper.
Such low valuations could lead one to believe that the Dow is just chock-full of blue-chip bargains. In some cases, that's true. But sometimes cheap stocks are a steal, and sometimes they're cheap for a reason.
Here is a look at the Dow's cheapest stocks, as measured by forward P/E, including an assessment as to whether these inexpensive bets are likely to become investor darlings or dogs in the next 12 to 18 months.
10 Best Cheap Stocks To Invest In 2014:America First Mortgage Investments Inc. (MFA)
MFA Financial, Inc., a real estate investment trust (REIT), primarily invests in mortgage-backed securities (MBS) that include hybrid and adjustable-rate MBS. MFA Financial has elected to be taxed as a REIT and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was formerly known as MFA Mortgage Investments, Inc. and changed its name to MFA Financial, Inc. in January 2009. MFA Financial was founded in 1997 and is headquartered in New York, New York.
10 Best Cheap Stocks To Invest In 2014:Inventure Foods Inc. (SNAK)
Inventure Foods, Inc. engages in the development, production, marketing, and distribution of snack food products and frozen berry products to grocery retailers, mass merchandisers, club stores, convenience stores, and vend distributors in the United States and internationally. The company manufactures and markets various healthy/natural and indulgent specialty snack food products under its own and licensed brand names. Its healthy/natural food products include the Rader Farms brand frozen berries; the Jamba brand smoothies; and the Boulder Canyon Natural Foods brand snack chips, including kettle cooked potato chips, rice and bean snack chips, and hummus tortilla chips. The company?s indulgent specialty foods comprise the T.G.I. Friday?s brand snacks; the BURGER KING brand snack products; the Poore Brothers brand kettle cooked potato chips; the Bob?s Texas Style brand kettle cooked chips; the Tato Skins brand potato snacks; and the O?Boises brand potato snacks. Its products also include multi-grain puffs, no salt kettle cooked potato chips, cheddar crunchy bites, zesty ranches, and blend-and-serve smoothie kits. In addition, the company manufactures and distributes private label and co-branded fruit and snack chip products for grocery chains and natural stores. Further, it purchases and resells snack food products, including pretzels, popcorn, dips, and meat snacks manufactured by others in Arizona. The company was formerly known as The Inventure Group, Inc. and changed its name to Inventure Foods, Inc. in May 2010. Inventure Foods, Inc. was founded in 1986 and is headquartered in Phoenix, Arizona.
10 Best Cheap Stocks To Invest In 2014:Continucare Corp. (CNU)
Continucare Corporation, together with its subsidiaries, provides primary care physician services on an outpatient basis in the United States. It provides medical services to patients through physicians, nurse practitioners, and physician?s assistants. The company also provides practice management services, including assistance with medical utilization management, pharmacy management, and specialist network development to independent physician affiliates (IPAs). As of June 30, 2009, the company operated a network of 18 medical centers, and provided practice management services to IPAs at 21 medical offices in Miami-Dade, Broward, and Hillsborough counties, Florida. In addition, Continucare Corporation operates and manages sleep diagnostic centers at 13 locations in South Carolina, North Carolina, West Virginia, Virginia, Colorado, and Ohio. These centers conduct sleep studies to determine whether patients suffer from sleep disorders and the severity of the condition. The company was founded in 1996 and is based in Miami, Florida.
10 Best Cheap Stocks To Invest In 2014:KKR Financial Holdings LLC (KFN)
KKR Financial Holdings LLC, together with its subsidiaries, operates as a specialty finance company with expertise in a range of asset classes. It primarily invests in financial assets consisting primarily of below investment grade corporate debt, including senior secured and unsecured loans, mezzanine loans, high yield corporate bonds, and distressed and stressed debt securities; marketable equity securities; and private equity. The company also invests in other asset classes, including natural resources and real estate. Its corporate debt investments are held in collateralized loan obligation (CLO) transactions that the company uses as long term financing for these investments. The senior secured notes issued by the CLO transactions are owned by third party investors, who are unaffiliated with the company and it owns the majority of the mezzanine and subordinated notes in the CLO transactions. KKR Financial Advisors LLC serves as the manager of the company. KKR Financial Holdings LLC was founded in 2004 and is based in San Francisco, California.
10 Best Cheap Stocks To Invest In 2014:Kid Brands Inc. (KID)
Kid Brands, Inc. designs, imports, markets, and distributes infant and juvenile consumer products. It offers infant bedding and related nursery accessories and d�cor, such as blankets, rugs, mobiles, nightlights, hampers, lamps, and wall art under Kids Line and CoCaLo brands; cribs, mattresses, and other nursery furniture under Babi Italia, Europa Baby, Bonavita, Graco, and Serta brands; and developmental toys, as well as feeding, bath, and baby care items for infants primarily under the Sassy brand. The company sells its products primarily to retailers. It sells its products directly, as well as through a distribution network in the United States, the United Kingdom, and Australia; and through independent manufacturers? representatives and distributors internationally. The company was formerly known as Russ Berrie and Company, Inc. and changed its name to Kid Brands, Inc. in September 2009. Kid Brands, Inc. was founded in 1963 and is based in East Rutherford, New Jersey.
10 Best Cheap Stocks To Invest In 2014:NGP Capital Resources Company (NGPC)
NGP Capital Resources Company is a business development company specializing in investments in small and mid size and middle market companies. The firm typically invests in acquisitions, buyouts, growth and development, revitalization, restructuring, recapitalizations, and special situations. It invests in energy companies with a focus on oil and gas exploitation, development, and production business; upstream businesses that acquire, develop, and produce oil, natural gas, and coal; midstream businesses that gather, process, store, and transport oil and natural gas; power generation and distribution; oil field services and other energy services; and alternative energy and other similar energy related businesses. The firm primarily invests between $10 million and $100 million in its portfolio companies. It invests in the form of secured, senior, and subordinate debt; convertible debt; preferred equity; project equity; production payments, net profits interests, and similar investments; and mezzanine loans and may receive equity investments in portfolio companies in connection with such investments. The firm makes asset and project based investments in private companies and can also invest in public companies. NGP Capital Resources Company was founded in 2004 and is based at Houston, Texas. It is a subsidiary of NGP Energy Capital Management.
10 Best Cheap Stocks To Invest In 2014:Dreyfus Strategic Municipal Bond Fund Inc. (DSM)
Dreyfus Strategic Municipal Bond Fund, Inc. operates as a diversified, closed-end management investment company in the United States. It primarily invests in long-term municipal investments. The Dreyfus Corporation serves as the investment advisor of the fund. Dreyfus Strategic Municipal Bond Fund was founded in 1989 and is based in New York City.
10 Best Cheap Stocks To Invest In 2014:IEC Electronics Corp. (IEC)
IEC Electronics Corp. provides electronic manufacturing services (EMS) to technology companies in the United States. It involves in the custom manufacture of circuit cards, system level assemblies, and an array of custom cable/wire harness assemblies. The company also provides electronic manufacturing services primarily for wireless communication systems, test diagnostic equipment, military and defense systems, transportation products, and medical instrumentation. It serves military, governmental agencies, aerospace, communications, medical, computing, and other industrial markets through direct sales force and a network of manufacturers? representatives. The company was founded in 1965 and is based in Newark, New York.
10 Best Cheap Stocks To Invest In 2014:Jewett-Cameron Trading Company (JCTCF)
Jewett-Cameron Trading Company, Ltd., through its subsidiaries, engages in the warehouse distribution and direct sale of wood products and specialty metal products to home centers and other retailers primarily in the United States. It operates in four segments: Industrial Wood Products; Lawn, Garden, Pet, and Other; Seed Processing and Sales; and Industrial Tools and Clamps. The Industrial Wood Products segment processes and distributes industrial wood products; and provides treated plywood to boat manufacturers and the transportation industry. The Lawn, Garden, Pet, and Other segment wholesales wood products, including fencing and landscape timbers; and manufactures and distributes specialty metal products comprising dog kennels, proprietary gate support systems, perimeter fencing, and greenhouses. The Seed Processing and Sales segment processes, distributes, and sells agricultural seeds to distributors. The Industrial Tools segment imports and distributes products, including pneumatic air tools, industrial clamps, and saw blades. The company was founded in 1953 and is headquartered in North Plains, Oregon.
10 Best Cheap Stocks To Invest In 2014:Aerosonic Corporation (AIM)
Aerosonic Corporation, together with its subsidiaries, engages in the design, manufacture, and sale of aircraft instruments worldwide. It offers mechanical and digital altimeters, airspeed indicators, rate of climb indicators, microprocessor controlled air data test sets, and other flight instruments. The company also produces mechanical and electro-mechanical cockpit instruments, angle of attack stall warning systems, digital cockpit instruments, integrated flight display systems, aircraft sensors and monitoring systems, and integrated multifunction probes, such as integrated air data sensors. It markets its products to manufacturers of corporate and private jets, contractors of military jets, the United States government, and private aircraft owners. The company sells its products directly through its sales personnel, as well as through distributors and commissioned sales representatives who resell to aircraft operators. Aerosonic Corporation was founded in 1953 and is based in Clearwater, Florida.
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