Maximum Pessimism: Three Low-Debt Stocks Priced At Less Than 3 Times EBITDA

The late Sir John Templeton 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 explained to me that he was normally averse to debt. He didn’t even have a mortgage on his house.

We seem to be living in a high-debt age. Leverage plagues our financial lives the way that sugar is spoiling the American diet. Debt is cheap and until 2008, it was far too readily available. So it’s unusual to find companies that have little or no debt on their balance sheets. It’s even rarer to find stocks in low-debt or no-debt companies that are trading for a price that Sir John might have considered cheap.

I have found three. They are Calamos Asset Management (CLMS), the money manager based in Naperville, Ill., Total SA (TOT), the French oil giant, and GameStop (GME), the video game retailer based in Grapevine, Texas.

Each of these three companies certainly faces business challenges. But looked at purely from a valuation standpoint, they’re darned interesting.

Very low-debt companies tend to trade at higher P/E ratios. But these two of these three stocks are trading at a PE ratio well below the S&P 500 average of 16, and one is just a tad over the S&P average.

CLMS PE Ratio Chart

CLMS PE Ratio data by YCharts

To appreciate just how cheap these stocks are, though, you should focus instead on their enterprise multiples—that’s enterprise value divided by their trailing 12-month earnings before interest, taxes, depreciation and amortization.

These three stocks have enterprise multiples of 3 or less.


CLMS EV / EBITDA TTM data by YCharts

As I said, all three are very low debt.

CLMS Debt to Equity Ratio Chart

CLMS Debt to Equity Ratio data by YCharts

Total, which appears to have the highest debt-to-equity ratio of the three, has an enormous amount of cash on hand.

TOT Long Term Debt Chart

TOT Long Term Debt data by YCharts

Size-wise, Total is the biggest, with a market cap over $100 billion. Calamos is the runt, with a market cap just over $200 million.

GME Market Cap Chart

GME Market Cap data by YCharts

All three have lagged the stock market and are trading near their lows, as seen in this stock chart.

TOT Chart

TOT data by YCharts

While you’re waiting for the rest of the world to figure out how cheap these stocks are, sit back and collect dividends. All three companies are paying out a pretty hefty dividend yield.

CLMS Dividend Yield Chart

CLMS Dividend Yield data by YCharts

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



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