The Cheapest Stocks I Know

As a member of the Motley Fool Rule Breakers research team, few readers will confuse me for a deep-value investor. I prefer turnover to turnarounds. I define the "C" in DCF as "catalysts." I find more investing ideas in lists of heavily shorted stocks than among the fresh 52-week lows.

Despite all this, I'm no spendthrift. I'm passionately cheap -- and I see great prices in growth stocks.

Value investors may have been jumping all over real estate developers last summer, when they seemed to be trading at single-digit P/E multiples. But earnings crashed, multiples contracted, and homebuilder stocks fell even further.

I prefer to hitch my portfolio's wagon to stocks that are actually growing. You can try your luck at nailing the top and bottom of cyclical stocks, but I won't. Why should I, when there are just way too many bargains out there from stocks that have consistently delivered the goods?

Five for the road
Now that we're done with 2008, we're starting to get a handle on estimates for this year. Let me run a few names past you. Tell me whether their P/E ratios surprise you:

Company	Recent Price	2009 EPS estimate	P/E
Akamai (Nasdaq: AKAM)	$20.32	$1.70	12.0
Google (Nasdaq: GOOG)	$407.98	$21.05	19.4
Research In Motion (Nasdaq: RIMM)	$73.18	$3.91	18.7
Priceline.com (Nasdaq: PCLN)	$108.88	$6.20	17.6
NetScout (Nasdaq: NTCT)	$9.52	$0.85	11.2

Data from Yahoo! Finance.

Finding growth stocks with 2009 profit multiples running in the teens -- and even pre-teens -- isn't necessarily cheap in and of itself. But dig a little deeper and you may start to appreciate what some of these companies are doing.

Akamai is the undisputed champ in content-delivery networks, speeding up the online experience. Google is the world's leading search engine, and by default, Internet advertising. Research In Motion is still the smartphone company to beat with its BlackBerry. Priceline.com continues to shine as a travel portal rising above its meandering rivals. NetScout is a niche tech specialist, boosting uptime in industries where there is zero margin for site outages.

All five companies may not be projected to grow their bottom lines this year, but analysts see healthy advances beyond that. If you're looking for bigger names, networking giant Cisco (Nasdaq: CSCO) is now fetching just 15 times this year's earnings. The world's original tech bellwether -- IBM (NYSE: IBM) -- is now trading at just 11 times this year's projected bottom line, and 10 times next year's profit target. 

These are growth stocks, yet they are fetching multiples that seem a better fit with sleepy utility stocks. So how can these not be the cheapest stocks that you know, too?

Buying the right kind of growth stock
The companies that I consider -- heck, demand to consider -- cheap are growing at incredible rates, yet they're priced as if they were only modestly above average. They also have a history of blowing past analyst profit targets, so the forward-looking estimates have a pretty good chance of being revised higher in the coming quarters.

That's where I want to be. Yes, Rule Breakers is a growth-stock newsletter service. Dig deep into the scorecard and you'll find:

• One of China's fastest-growing Internet companies, with ridiculously wide profit margins, trading for less than 11 times next year's projected earnings.
• A luxurious pampering-services specialist fetching just 13 times forward profitability.
• Two of the five stocks I mentioned earlier -- Akamai and Google -- that actually do look cheap, at least in my book.

Growth stocks are the greatest value stocks I know. Remember when Google went public at $85 in the summer of 2004? Did you think it was overpriced at the time? If so, you weren't alone. But no one knew that the company was positioning itself to earn $23.93 per share come 2010. Those who got into Google early snapped up a stake in the paid-search giant for just 3.6 times 2009 profits.

Getting in early on the right growth stocks is the key. Just your luck -- the growth-stock kissing booth doesn't have much of a line these days. Pucker up, my friend.