The first to slump and the last to rally -- that's the usual fate of stocks of smaller companies when the markets wildly gyrate. Their perceived riskiness -- relative to blue chips -- keeps them in the doghouse, even after the broader market
posts a sustained rebound. With the S&P 500 up roughly 10% since Oct. 3, might it finally be time for investors to move a bit on out on the risk curve and focus again on low-priced small stocks? If so, it pays to look at stocks that have taken an especially hard hit in this choppy market.
Even as the S&P 500 is now higher than it was on July 22, when the market sell-off began, these five low-priced stocks are off at least 15% since then, and now look like deep bargains.
1. Office Depot (NYSE: ODP)
Recent Price: $2.24
Price change since July 22: -38%
This office supply chain has always toiled in the shadow of industry leader Staples (Nasdaq: SPLS), posting subpar growth metrics for an extended time. You have to go back to 2006 to find the last time that sales grew at least 5%.
Yet tepid sales still haven't prevented Office Depot from delivering respectable free cash flow: The retailer has generated a cumulative $300 million in free cash flow in the past three years, helping to boost tangible book value to $600 million. That's right in line with the company's market value, prompting Chairman and CEO Neil Austrian to acquire 100,000 shares with his own money in late August. He bought stock at $2.50 a share, and it's now more than 10% below that level. Goldman Sachs, which sees shares rising from a recent $2.20 to $4, assessed results from the most recent quarter and noted that "efforts to improve profitability through better analytics and an ongoing cost-cutting effort are gaining traction." By Goldman's math, this stock sports a free cash flow yield (based on 2012 forecasts) of more than 20%.