Identifying a "cheap" stock can go beyond seeking out a low P/E or low price to book stock. More so, a stock that looks cheap based on statistical measures of value can be cheap for a very good reason and prove frustrating for investors. Many investors - and rightly so - find value in stocks that offer promising future growth. The key is to pay as little for that growth as possible in relation to the actual growth you are getting.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

1. Apple (Nasdaq:AAPL)
Growth has certainly become more expensive for value seeking investors over the past several months. Yet if you want to bet on continued growth, the obvious name that comes to mind is Apple, which is trading near its all-time highs, can still be a great pick. Shares still trade for aprox 19 times earnings, despite revenue and profit growth in excess of 40%.

In addition, Apple has over $25 billion in excess cash that when stripped out of the company, makes the shares look a little cheaper. Sales of the iPads are growing like a weed and that will likely continue to propel the company even further.

2. Lufkin Industries (Nasdaq:LUFK)
At first blush Lufkin Industries looks absurdly expensive at 55 times earnings. In actuality, the company's earnings have been depressed and look set to expand. Lufkin makes artificial lifts for the oil industry. Lufkin holds a large market share. Shares trade for 17 times forward earnings, but increased interest in shale gas could increase demand for the company's products further. To be sure, this stock is not cheap, and growth is not a given. But Lufkin has been in business for over 100 years and is considered a market leader.

SEE: 9 Simple Investing Ratios You Need To Know

3. Transocean (NYSE:RIG)
The oil rig provider may turn out to be a compelling play over the next few years. Despite the fact that shares had once doubled since the Gulf oil spill in 2010, Transocean's profits could swell over the next few years as demand for ultra deep water drilling rigs remains robust. Shares trade for aprox 1.2 times book and 11 times forward earnings. To appreciate the potential, consider that the low and high EPS estimate for the company in 2011 was $6.78 to $12.50. Shares trade for $42 today.

SEE: A Primer On Offshore Drilling

Transocean shares once traded for seven times EBITDA. Rival Ensco (NYSE:ESV) had agreed to buy competitor Pride (NYSE:PDE) for $7.3 billion in cash and stock, or a valuation of 21 times EBITDA. By most counts, this deal was viewed as an expensive purchase for Ensco. Even so, Transocean shares look incredibly compelling at the current valuation.

Price Determines Value
When a company achieves quality growth, it will almost always create value. However, the key for an investor is not to overpay for that growth as that can turn good growth into a bad investment.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Stock Analysis

    The Top 5 Micro Cap Alternative Energy Stocks for 2016 (AMSC, SLTD)

    Follow a cautious approach when purchasing micro-cap stocks in the alternative energy sector. Learn about five alternative energy micro-caps worth considering.
  7. Stock Analysis

    Analyzing Porter's Five Forces on Under Armour (UA)

    Learn about Under Armour and how it differentiates itself in the competitive athletic apparel industry in light of the Porter's Five Forces Model.
  8. Stock Analysis

    The Biggest Risks of Investing in Qualcomm Stock (QCOM, BRCM)

    Understand the long-term fundamental risks related to investing in Qualcomm stock, and how financial ratios also play into the investment consideration.
  9. Stock Analysis

    The Biggest Risks of Investing in Johnson & Johnson Stock (JNJ)

    Learn the largest risks to investing in Johnson & Johnson through fundamental analysis and other potential risks. Also discover how JNJ compares to its peers.
  10. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
RELATED FAQS
  1. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  2. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  3. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  4. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  5. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
  6. What is the formula for calculating earnings per share (EPS)?

    Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center