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ENSCO PLC (ESV), Deere & Company (DE), Apple Inc. (AAPL): Three Cheap Stocks With Good Dividend Yields

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Since the beginning of the year, the S&P 500 has enjoyed a nice run, returning as much as 18.64%. The S&P 500 is not valued cheaply anymore, with a forward P/E ratio of 14.85. The dividend yield of the overall market stays at 2.10%. In order to beat the market, investors should follow the simple rule: Buy low, sell high, and always have a long-term horizon.

Recently, Barron’s featured 15 stocks that have a single-digit forward earnings valuation and offers shareholders decent dividend yield. Here are the top three stocks I think investors should take a closer look at: ENSCO PLC (NYSE:ESV)Deere & Company (NYSE:DE) and Apple Inc. (NASDAQ:AAPL). The dividend yields of those three companies are higher than the S&P 500 and they are valued at a single-digit forward earnings valuation.

Offshore contract driller with a strong balance sheet

ENSCO PLC (NYSE:ESV) is engaged in the business of offshore contract drilling services for international oil and gas companies, operating around 74 rigs in many areas including Southeast Asia, the North Sea, the U.S. Gulf of Mexico, and the Mediterranean. The company has quite a concentrated customer base, with the five biggest customers accounting for 48% of its total revenue in 2012. The biggest customer is Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), representing 24% of its total sales. Because ENSCO PLC (NYSE:ESV) invests its money in rigs to provide to oil and gas companies, its business would be affected by oil and gas macro environments, including oil and gas prices and the overall global macro economy. Ensco could be classified as a cyclical business. Any cyclical business should have a strong balance sheet to weather unexpected headwinds in the market.

What I like about ENSCO PLC (NYSE:ESV) is its strong balance sheet with a reasonable amount of leverage. As of March 2013, it had more than $12 billion in equity, $612 million in cash and short-term investments, and only nearly $4.8 billion in long-term debt. The goodwill and intangible assets came in at nearly $3.4 billion. ENSCO PLC (NYSE:ESV) is trading at $61.20 per share, with the total market cap of $14.26 billion. The market values Ensco at nearly 8 times its forward earnings. Income investors would be happy with its decent dividend yield at 3.30%, while the payout ratio is quite low, at only 31%.

In the second quarter, Ensco expects to grow its revenue by 10% compared to the revenue of $1.15 billion in the first quarter 2013. The company has already seen growing demand for rigs in deepwater markets, especially in emerging exploration areas. Looking forward, ENSCO PLC (NYSE:ESV) will benefit from the rising trend of overall global oil  and gas activities, with its advanced rigs, which could improve drilling productivity and fuel efficiency for oil and gas companies.

A decent agriculture-related stock

Deere & Company (NYSE:DE) is a good play on the agriculture sector, operating in two main business segments: Agriculture & Turf, and Construction & Forestry. Most of its sales, $27.1 billion, were generated from the Agriculture & Turf segment while the Construction & Forestry segment contributed only $6.4 billion in 2012 sales. Deere & Company (NYSE:DE) has laid out its priorities for the use of cash. First, it would use the operating cash flow to maintain its balance sheet strength, committing to an “A” rating for the low-cost fund access. Then, it would use the cash for the operating purposes and the business’s growth needs. Then, it would come to dividend payment and share repurchases. In the mid-cycle earnings, the company expected to maintain around a 25%-35% payout ratio.

Deere & Company (NYSE:DE) has been a great cannibal, buying back around $9.5 billion worth of shares since 2004. It also consistently raised its dividend payment, from $0.11 per share in the first quarter 2003 to $0.51 in the third quarter 2013. Looking forward, Deere is bullish about its future. It expects sales growth of 7% for the Agriculture & Turf segment, but a 5% decline in the much smaller Construction & Forestry segment. The consolidated sales growth could come in at around 5% compared to the fiscal 2012. The company is trading at around $84 per share, with the total market cap of $32.6 billion. The market values Deere at 9.75 times its forward earnings. Its dividend yield is higher than the S&P 500, at 2.40%.

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