Despite the S&P 500 recently nearing all-time highs, a Foolish investor can still find many underappreciated stocks in this otherwise bullish market. Regardless of new highs and generous valuations, I have managed to find a wide variety of stocks that appear cheap. While the concept of finding cheap stocks is simple enough, it only tells half the story, as many great investments are not necessarily cheap, but simply undervalued. I present three companies that I believe are not only cheap, but blatantly undervalued by the market.
Skullcandy Inc (NASDAQ:SKUL)
Why it’s cheap : simply put, Skullcandy Inc (NASDAQ:SKUL) trades at only 7x its earnings and 6x its forward earnings. Following the departure of its CEO, slight guidance downward, a downgrade from Roth Capital, and an incredibly competitive market, the audio retailer’s stock has dropped almost 70% since its IPO.
Why it’s undervalued: first, despite the departure of its CEO, Jeremy Andrus, former founder and CEO Rick Alden will be taking the helm on an interim basis, allowing his company the freedom to take a good hard look at its future CEO. Second, the company welcomed new CFO Kyle Wescoat to the team and was recently cleared to buy back $28 million worth of its shares, potentially priming itself to be acquired. All things held constant, this buyback would represent a 20% premium if all the buyback value were to be exhausted at today’s prices.
My third point is Skullcandy’s growth. Revenues grew at a 17% clip in its most recent quarter, but the stock was pounded by traders all the same. Trading with a P/E of 7, however, the market has the company priced as if it is going out of business altogether, yet alone growing. By acquiring Astro Gaming, Skullcandy Inc (NASDAQ:SKUL) has entered into the gaming headset arena, a strong market riding on the potential of mobile gaming. Furthermore, the company acquired distribution rights for Europe and is setting up a direct business line of operations in Canada, Brazil, and China.
Highlighting my fourth and final point is the company’s strength through its brand image. Boasting a number of athletes in a wide variety of sports, the company has many huge names on its “Skullcandy team.” Ranging from Kevin Durant and Derrick Rose in the NBA, to model Kate Upton, musician Jay-Z, and to the company’s roots in its snow and surf teams, Skullcandy Inc (NASDAQ:SKUL) has celebrity firepower to go up against many other huge competitors. Facing off with Bose, Sony Corporation (ADR) (NYSE:SNE), Beats by Dre, JVC, and Soul by Ludacris , just to name a few, the company will need to maintain its strong brand image and pricing power to compete. With its former CEO Rick Alden at the helm, I believe they can do just that, and at these valuations, I am willing to make an investment.
Molson Coors Brewing Company (NYSE:TAP)
Why it’s cheap: Molson Coors Brewing Company (NYSE:TAP) is trading with a P/B of one and a price-to-cash-flow of 8, well below its ten-year averages in each, at 1.2 and 11 respectively. Furthermore, its forward P/E of 10 is its lowest P/E level for the entire decade, signaling that the company’s short-term growth potential may not be fully priced in yet.
Why it’s undervalued: cementing itself as the number two brand in the United States with its Coors Light beer, things are finally starting to look up a little bit for the beleaguered brewery. While it is still far behind Anheuser-Busch InBev NV (ADR) (NYSE:BUD)‘s Bud Light, it is great to see signs of domestic growth for the cheaply valued company. Posting 6% growth year-over-year with its biggest American brand, Molson Coors Brewing Company (NYSE:TAP) finally surpassed Budweiser and will be able to focus on its international operations a little bit more.