In the world of investing, arguably the most important factor for the individual investor is avoiding large losses. While taking big risks can be exciting and create the potential for large gains, the reality is that one wrong move can undo years of portfolio growth and, in some cases, result in permanent capital loss.

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The past decade has provided no shortage of real-world examples of this theoretical concept. First, investors witnessed the collapse of the sky-high stock prices of the dotcom bubble era. Subsequently, they saw the demise of the irrationally over-leveraged credit and housing bubble. Two devastating bubbles in a single decade: truly a bitter pill to swallow. But while the context of each bubble was markedly different, the lesson for individual investors is precisely the same for each - avoiding exposure to large losses should always be the primary concern.

Stay Cheap, Stay Safe
As we move forward from the wreckage of failed technology pipedreams, absurd real estate prices and excessive leverage, human nature dictates that future bubbles will rise to take their place. As such, maintaining strict adherence to strategies that limit the potential for large losses will always be important.

For the individual investor, a feasible way to do so is to limit purchase selections to only those stocks already trading at low P/E ratios. While some stocks sporting low P/E ratios will in fact turn out to be justifiably cheap, on average a portfolio constructed with low P/E stocks will likely have less downside risk than the overall market.

Snagging Undervalued Bargains
As well, by consistently purchasing low P/E stocks for your portfolio, the probability of snagging a few truly undervalued bargains along the way increases, thus generating those ever-so-satisfying large returns without exposure to excessive downside risks.

With all that in mind, here are five stocks currently carrying relatively low P/E price tags, yet are still expected to post annual earnings increases in their upcoming full fiscal years.

Company Market Cap P/E (TTM) EPS Growth (YOY Est.)
Deer Consumer Products (Nasdaq:DEER) $280 M 14.4 28%

Orion Marine
$350 M 16.1 23%

Cooper Tire & Rubber
$1.29 B 15.3 5.5%

Seaspan Corp.
$690 M 11.6 49.6%
Limited Brands (NYSE:LTD) $8.01 B 14.6 12.2%
Data as of Market Close July 14, 2010

Deer Anything But Dear
A perfect example of this is found in Deer Consumer Products, a Chinese kitchen appliance manufacturer. While the stock traded in the $17 range in late 2009, it has since been ground in half by the market to trade in the $8.50 range at present. While Deer was not exactly a bargain at $17, it certainly looks reasonably priced at the moment, carrying a trailing P/E of 14.4.

A quick look at the stock's forward outlook reveals analyst expectations of 75 cents EPS for its full year 2010, with 96 cents expected for 2011, representing an outstanding 28% year-over-year (YOY) increase. Given that outlook, the stock's forward P/E ratio sits at only 8.8. Adding to the stock's undervaluation case, Deer has zero long-term debt and currently sports $2.31 of net cash per share. With Chinese stocks deeply out of favor at the moment, it's entirely possible this stock has seen indiscriminate selling push its share price below fair value. At the least, it's unlikely Deer will see further drastic price declines, assuming its balance sheet and earnings expectations are accurate.

The Bottom Line
While there is no free lunch in the world of finance, one of the few feasible ways the individual investor can get a break is to limit stock selections to only those trading at the cheapest valuations. Buying cheap, on average, works. Finding particular stocks that are not only cheap but also have decent earnings potential is the best of both worlds. Time will tell whether Deer Consumer Products is a good company selling on the cheap or merely a cheap stock. (For more investing ideas, check out Double Digit Dividends.)

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