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Maximum Pessimism: Four Possibly Attractive Large-Cap Stocks With P/E Ratios Less Than 5

If you’re looking for investors to emulate, a good place to start is the late Sir John Templeton. He was fond of purchasing stocks at a point of “maximum pessimism.” Basically, he was a dumpster-diver, purchasing shares that were unloved—hated, even—by the rest of us.

I interviewed him in his Nassau home in October 2001, and the great man told me about his investing technique. “Do you use a special investment metric?” I asked, expecting him to come back at me with some devilishly complex hybrid of return on equity, cost of capital and profit per employee.

“I do have one, yes,” he said. Then Sir John leaned in closely to me and began to speak in his soft, raspy whisper. “I like to take a stock’s price,” he began, “and divide it by the earnings per share.”

“The P/E ratio?”

“Yes.”

“Really?”

“Yes.”

I have for you today four stocks that I think would have interested Sir John. Cliff Natural Resources (CLF), the mining company; CME Group (CME), the Chicago-based owner of the world’s largest futures exchanges, Kronos Worldwide (KRO), the Dallas-based manager of titanium dioxide pigments used in coatings, paints, inks and such, and Telecom Argentina (TEO), based in Buenos Aires.

They each have PE ratios of less than 5.

CLF PE Ratio Chart

CLF PE Ratio data by YCharts

None is overburdened by debt.

TEO Debt to Equity Ratio Chart

TEO Debt to Equity Ratio data by YCharts

They have market capitalizations of greater than $1 billion.

CLF Market Cap Chart

CLF Market Cap data by YCharts

They’ve all lagged the stock market. And some are trading at or near their year or multi-year lows, as seen in a stock chart.

CLF Chart

CLF data by YCharts

All four stocks are rated “Attractive” by our YCharts Pro service. If you’re looking for stocks to buy, start by researching these four. At these valuations, there are plenty of warts. Sorting that out if what value investing is all about. And don’t forget Sir John’s favorite investment metric.

Stephane Fitch is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.

Read more articles about: Investing Ideas  

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