5 Best Cheap Stocks To Own For 2014

Last week, the difference in price between Brent, the global oil benchmark, and West Texas Intermediate (WTI), the main U.S. benchmark, collapsed to its lowest level since early 2011. This so-called Brent-WTI spread is a crucial gauge of profitability among U.S. refiners; the lower it dips, the lower their refining margins, all else being equal. �

For much of this year, the spread held above $15, even topping $20 in February. That helped refiners with access to cheap WTI, such as Phillips 66 (NYSE: PSX  ) , Valero (NYSE: VLO  ) , and HollyFrontier (NYSE: HFC  ) , deliver solid first-quarter performances.

Phillips 66 reported a realized refining margin of $13.94 a barrel in the first quarter ��the best in the company's recent history��while Valero's refining throughput margin came in at $10.59 per barrel, up from $7.71 per barrel in the same period last year. And�HollyFrontier's consolidated refinery gross margin clocked in at $23.32 per produced barrel, a 34% improvement over the year-earlier quarter.�

5 Best Cheap Stocks To Own For 2014: Ford Motor Credit Company(F)

Ford Motor Company primarily develops, manufactures, distributes, and services vehicles and parts worldwide. It operates in two sectors, Automotive and Financial Services. The Automotive sector offers vehicles primarily under the Ford and Lincoln brand names. This sector markets cars, trucks, and parts through retail dealers in North America, and through distributors and dealers outside of North America. It also sells cars and trucks to dealers for sale to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies, and governments. In addition, this sector provides retail customers with a range of after-sale vehicle services and products in the areas, such as maintenance and light repair, heavy repair, collision repair, vehicle accessories, and extended service contracts under the Ford Service, Lincoln Service, Ford Custom Accessories, Ford Extended Service Plan, and Motorcraft brand names. The Financial Services sector offers vari ous automotive financing products to and through automotive dealers. It offers retail financing, which includes retail installment contracts for new and used vehicles; direct financing leases; wholesale financing products that comprise loans to dealers to finance the purchase of vehicle inventory; loans to dealers to finance working capital, purchase real estate dealership, and/or make improvements to dealership facilities; and other financing products, as well as provides insurance services. Ford Motor Company was founded in 1903 and is based in Dearborn, Michigan.

Advisors' Opinion:

• [By James K. Glassman]

  Two years ago, I started a new tradition: picking a stock myself. In both years, it was iShares MSCI Brazil Index, an exchange-traded fund that tracks the Brazilian stock market. It bombed twice, and I am not going to that well again. I’m picking Ford Motor (symbol: F), whose heroic CEO, Alan Mulally, turned down bailout money and guided the business through tough times to 13 straight quarters of pretax profitability, including surprisingly strong earnings of $1.6 billion in the third quarter of 2012. Ford still has room to grow. Despite the firm's achievements, the stock has dropped 40% since early 2011, and the P/E is 8. The P/E is low because investors apparently don't believe that Ford can sustain those high profits. I think they're wrong and believe that Ford deserves a higher valuation.

• [By Victor Mora]

  Ford is a well-established vehicle products and services producer, distributed in a multitude of countries across the globe. The stock is currently consolidating gains after a bullish run, so it may need some time before the company makes its next move. Over the last four quarters, earnings and revenue figures have been mixed, which has resulted in slightly disappointed investors. Relative to its peers and sector, Ford has been an average year-to-date performer. WAIT AND SEE what Ford does this coming quarter.

5 Best Cheap Stocks To Own For 2014: DRDGOLD Limited(DROOY)

DRDGOLD Limited engages in the exploration, extraction, processing, and smelting of gold in South Africa. It holds interests in the Blyvoor mine; and the Crown gold surface tailings retreatment facility that reprocesses sand and slimes dumps, as well as involves in the surface retreatment operations. The company was incorporated in 1895 and is based in Roodepoort, South Africa.

Advisors' Opinion:

• [By seekingalpha.com]

  With mining assets in South Africa, the company runs operations from exploration through to smelting.

  Shares are trading at $4.23 at the time of writing, toward the bottom end of their 52-week trading range of $3.96 to $6.23. At the current market price, the company is capitalized at $162.80 million. Earnings per share for the last fiscal year were $1.21, placing the shares on a price to earnings ratio of 3.49. It paid a dividend of $0.06 last year (a yield of 1.40%) which was covered over 20 times by its earnings.

  It has the lowest price-to-earnings ratio of the gold mining stocks, though its share price is being held back by recent employee unrest in the region. There is room for the company to increase its well-covered dividend, and that should be attractive to income investors. With gold prices increasing, and production costs likely to remain stable, DRDGold could be a stock worth investing in for the gearing that the safe haven value of its gold reserves offers to its potential earnings.

Top Gold Stocks To Invest In Right Now: Kohl's Corporation(KSS)

Kohl?s Corporation operates department stores in the United States. The company?s stores offer private and exclusive, as well as national branded apparel, footwear, and accessories for women, men, and children; soft home products, such as sheets and pillows; and housewares primarily to middle-income customers. As of January 29, 2011, it operated 1,089 stores in 49 states. The company also offers on-line shopping on its Web site at Kohls.com. Kohl?s Corporation was founded in 1962 and is headquartered in Menomonee Falls, Wisconsin.

Advisors' Opinion:

• [By Dug]

  With its value-priced merchandise, private label, and brand-name goods, Kohl's is part department store and part discounter. "It's not quite as high-end as Macy's, or as low as Wal-Mart," says Resendes. The near-term outlook for retailers is gloomy, but Kohl's should be in a good position when the economy rebounds, he says. "A lot of consumers have migrated to Wal-Mart in terms of price, but they'll migrate back up, and a natural first stop is going to be Kohl's." Another plus: Kohl's doesn't offer store credit cards, "so defaults aren't hanging over its head," says Resendes. "That will be a great strength when we exit this economic turmoil." He sees a 25 percent upside to the company's shares, which recently traded at $38.

5 Best Cheap Stocks To Own For 2014: WebMediaBrands Inc(WEBM)

WebMediaBrands Inc., an Internet media company, provides content, education, and career services to media and creative professionals through a portfolio of vertical online properties, communities, and trade shows. The company operates mediabistro.com, a blog network that provides content, education, community, and career resources about media industry verticals, including new media, social media, Facebook, TV news, sports news, advertising, public relations, publishing, design, mobile, and the semantic Web. Its mediabistro.com also includes a job board for media and business professionals focusing on various job categories, such as social media, online/new media, publishing, public relations/marketing, advertising, sales, design, and television. The company also operates a network of online properties, including AdsoftheWorld, DynamicGraphics, LiquidTreat, BrandsoftheWorld, Graphics.com, StepInsideDesign, Creativebits, and GraphicsDesignForum that provide content, educatio n, community, career, and other resources for creative and design professionals. In addition, it offers community, membership, and e-commerce offerings comprising a freelance listing service, a marketplace for designing and purchasing logos, and premium membership services. Further, the company provides online and in-person courses, panels, certificate programs, and video subscription libraries for media and creative professionals. Additionally, it organizes various trade shows that include Semantic Technology Conference, Monetizing Social Media, Social Media Optimization Conference, Social Gaming Summit, and Virtual Goods Summit. The company was formerly known as Jupitermedia Corporation and changed its name to WebMediaBrands Inc. in February 2009. WebMediaBrands Inc. was founded in 1999 and is based in New York, New York.

5 Best Cheap Stocks To Own For 2014: International Business Machines Corporation(IBM)

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. Its Global Technology Services segment provides IT infrastructure and business process services, including strategic outsourcing, process, integrated technology, and maintenance services, as well as technology-based support services. The company?s Global Business Services segment offers consulting and systems integration, and application management services. Its Software segment offers middleware and operating systems software, such as WebSphere software to integrate and manage business processes; information management software for database and enterprise content management, information integration, data warehousing, business analytics and intelligence, performance management, and predictive analytics; Tivoli software for identity management, data security, storage management, and datacenter automation; Lotus software for collaboration, messaging, and so cial networking; rational software to support software development for IT and embedded systems; business intelligence software, which provides querying and forecasting tools; SPSS predictive analytics software to predict outcomes and act on that insight; and operating systems software. Its Systems and Technology segment provides computing and storage solutions, including servers, disk and tape storage systems and software, point-of-sale retail systems, and microelectronics. The company?s Global Financing segment provides lease and loan financing to end users and internal clients; commercial financing to dealers and remarketers of IT products; and remanufacturing and remarketing services. It serves financial services, public, industrial, distribution, communications, and general business sectors. The company was formerly known as Computing-Tabulating-Recording Co. and changed its name to International Business Machines Corporation in 1924. IBM was founded in 1910 and is based in Armonk, New York.

Advisors' Opinion:

• [By Paul]

  IBM. Emerging markets are a big growth driver for this computer systems and software provider. Not only that, Resendes says, IBM has "a bullet-proof balance sheet that will allow it to weather the current storm and position it for superior growth and profitability in the long term." He thinks the stock, which recently traded at $93, is worth $120 a share: ''There are some obvious companies that offer much bigger discounts, but you have to incorporate the safety factor. You're getting a premium company here that's a good spot to be in within the tech space."

• [By Peter Hughes]

  International Business Machines (IBM) -- our aggressive pick for the year -- is one of the world's most dominant technology companies, with annual revenues of $105 billion and net income of $16 billion.

• [By Geoff Gannon] Wells Fargo (WFC) ��that only seem cheap if you believe in their franchises. These are far from Ben Graham bargains.
  
  And then other times, Buffett buys companies like Daehan Flour Mills. Or he buys into a liquidation like Comdisco. Or an arbitrage position like Dow Jones.
  
  How does Buffett choose between:
  
  路 A wonderful business at a fair price
  
  路 A fair business at a wonderful price
  
  路 A business that is liquidating
  
  路 An arbitrage opportunity?
  
  Very few successful investors buy stocks that fall into all these categories. Ben Graham did arbitrage, liquidations, and fair businesses at wonderful prices. But he never bought wonderful businesses at fair prices.
  
  Phil Fisher bought wonderful businesses at fair prices. But he never bought fair businesses at wonderful prices, or liquidations, or arbitrage.
  
  Is Buffett just combining Ben Graham and Phil Fisher?
  
  No.
  
  Buffett invested in GEICO ��in fact he put 75% of his net worth into GEICO ��while he was still taking Ben Graham�� class. GEICO is a great example of Warren�� departure from the Ben Graham approach. Buffett was departing from Graham�� approach from the moment he set foot in Graham�� class.
  
  How?
  
  He was focused on his return on investment. He was focused on compounding his wealth. Graham wasn��. Buffett was. That was the difference.
  
  And so Buffett immediately started buying the same stocks as Ben Graham ��but he focused on just the very best ideas in Graham�� portfolio. A great idea for Ben Graham would ��at most ��account for about 10% of his common stock portfolio. A great idea for Warren Buffett could be ��like GEICO was ��75% of his portfolio.
  
  When Buffett started his partnership, he had a 25% position size cap. But he removed that to allow for a 40% investment in American Express (AXP). Buffett made many investments of 10% to 20% of the partnership�� portfolio over the years. For Ben Graham, 10% to 20% was a real! ly big position. It wasn�� the kind of thing you bought every year.
  
  So a huge difference between Ben Graham and Warren Buffett was focus. Buffett was always focused on his best ideas. This is part of what makes Warren Buffett similar to Phil Fisher. And very different from almost all other investors.
  
  The other part of Warren Buffett�� approach that separates him from most investors is that he�� wedded to a very specific idea ��return on investment ��rather than a very specific style of investing.
  
  The only way Buffett can sort through a range of different ideas including good companies, mediocre companies, liquidations, and arbitrage ��is by looking at his return on investment.
  
  I wrote about this back in 2011 in an article entitled: ��arren Buffett: Mid-Continent Tab Card Company.��br>
  That article was based on Alice Schroeder�� description of Warren Buffett�� investment in Mid-Continent Tab Card Company.
  
  And it�� a good article to read if you want to know how Warren Buffett thinks about stocks. Because it includes such heretical ideas as: ���growth had the potential to be either an added kicker or the most serious risk to his investment��and ��ou build the margin of safety into each step. You don�� just slap a 40% discount on the intrinsic value estimate you get at the end.��br>
  But the most important statement in that article was:
  
  ��uffett doesn�� seem to make actual estimates. Alice Schroeder says she never saw anything about future earnings estimates in his files. He didn�� project the future earnings the way stock analysts do.��br>
  How is that possible?
  
  How can you sort through a variety of different investment options without using any explicit future estimates?
  
  You have to think in terms of return on investment.
  
  In fact, the reader who asked me the question that prompted the Mid-Continent Tab Card Company article actually got very close to identifying how Warren Buffett thinks about st! ocks:
  !
  ��ou wrote that Buffett just looked at the initial return (>15%) he was getting and the business�� own ROC. When you aid ��nitial��do you mean the 1st year? I think that sort of makes sense because his return of the subsequent years would be taken (from) the firm�� own ROC and sales growth. Is that how you see it?��br>
  Now, what did that reader get wrong? He came very, very close to describing how Buffett looks at a business. But he just missed.
  
  What variable isn�� being considered there?
  
  Is it really true that: ��is return of the subsequent years would be taken (from) the firm�� own ROC and sales growth��
  
  Let�� say a company has zero leverage. And its return on assets has been 10% a year for each of the last 100 years. You can bet on that 10% a year. Okay. Now, let�� say it is growing sales by 10% a year.
  
  How much is the business worth?
  
  And how much should an investor expect to make in that stock if he pays exactly tangible book value?
  
  Can the investor expect to earn 20% a year or 10% a year?
  
  Or something in between?
  
  Now, if you expect to hold the stock for a short-period of time your return will largely be based on what the market is willing to pay for each dollar of earnings the stock has in the future. So, you can certainly make over 100% a year if you buy a stock at 10 times earnings and sell it at 20 times earnings exactly one year from today.
  
  I�� not talking about that. Don�� worry about the resale value right now. Just look at the question of what the owner of a business can expect to make if the following facts are true:
  
  路 Total Assets: $100
  
  路 Annual Earnings: $10
  
  路 Future Annual Sales Growth: 10%
  
  Do you think you can answer that question?
  
  A lot of people think they can answer that question. But Warren Buffett would say you can�� answer that question.
  
  Not until you consider two possible future scenarios. Ten years from today, that same business cou! ld look l! ike:
  
  路 Total Assets: $260
  
  路 Annual Earnings: $26
  
  路 Future Sales Growth: ?
  
  Or it could look like:
  
  路 Total Assets: $100
  
  路 Annual Earnings: $26
  
  路 Future Sales Growth: ?
  
  Or it could look like anything in between. In fact, I�� simplifying. If you look at their 10-year records, quite a few businesses grew assets faster than earnings. So, the range of possible outcomes in terms of the ratio of change in earnings to change in assets is even wider than I just presented.
  
  If we look at two businesses each earning 10% on their assets, each unleveraged, and each growing at 10% a year ��we can imagine one future where assets have grown by $160 over 10 years. And we can imagine another future where assets haven�� grown at all over 10 years.
  
  Which is the better future for an owner?
  
  Obviously, the future with sales growth that far exceeds asset growth.
  
  That would allow the company to buy back stock, pay dividends, etc.
  
  So we can think of the combination of a company�� return on assets and its change in assets and sales as being like the total return on a stock. The total return on a stock includes both price appreciation and dividends.
  
  The total return on a business includes both the return on assets (from this year) and the growth in sales. But it does not include sales growth apart from asset growth. Rather, to the extent that assets and sales grow together ��growth is simply the reinvestment of more assets at the same rate of return.
  
  In other words, a business with a 10% ROA and 0% sales growth and a business with a 10% ROA and 10% sales growth could be more comparable than they appear. If the company with no sales growth pays out 10% of its assets in dividends each year, why is it worth less than the business with a 10% ROA and 10% sales growth?
  
  In the no-growth company, I get 10% of my initial investment returned to me. In the growth company, I get 10% of my initial investment reinv! ested for! me. If the rate of return on that reinvested cash is the same rate of return I can provide for myself on the cash paid out in dividends ��why does it matter which company I choose?
  
  Doesn�� an owner earn the same amount in both businesses?
  
  Now, I think there are qualitative reasons ��basically safety issues ��that would encourage me to prefer the growing business. Usually, companies try to grow. If a company isn�� growing, it could be a sign of something serious.
  
  So a lack of growth is sometimes a symptom of a greater disease. But growth is not always good.
  
  In more cases than people think, growth is actually a pretty neutral consideration in evaluating a stock.
  
  There is an exception. At unusually high rates of growth ��growth is almost universally good. This is a complex issue. But I can simplify it. Very few businesses that grow very fast do so by tying up lots of assets relative to the return they earn on those assets. Therefore, it is unnecessary to insist on high returns on capital when looking at very high growth companies. You��l get the high returns on capital ��at least during the company�� fast growth stage ��whether you ask for them or not.
  
  What do I mean when I say growth is often a pretty neutral consideration?
  
  Let�� use live examples.
  
  Here is Hewlett-Packard (HPQ)��br>
  10-Year Average Return on Assets: 3.2%
  
  10-Year Annual Sales Growth: 10.7%
  
  10-Year Annual Asset Growth: 14.5%
  
  And here is Value Line (VALU)��br>
  10-Year Average Return on Assets: 76.2%
  
  10-Year Annual Sales Growth: (8.2%)
  
  10-Year Annual Asset Growth: (11.1%)
  
  Whose assets would you pay more for?
  
  I have a problem with an 8% a year decline in sales. And worry that the future looks really, really grim for Value Line.
  
  But it�� hard to say Hewlett-Packard has gained anything through growing these last 10 years. The company has retained a lot of earnings. And it retained those earnings e! ven while! return on assets was low.
  
  The 10-year total return in Value Line shares has been (0.9%) a year over the last 10 years. The 10-year year total return in Hewlett-Packard has been a positive 4% a year.
  
  So it sounds like Hewlett-Packard has done much better. But all of that is attributable to investor perceptions of their industry. If you look at HP�� industry, total returns ��from 2002 to 2012 ��in the stocks of computer makers were around 14% a year. Meanwhile, publishers ��like Value Line ��returned negative one percent a year. So, Value Line�� underperformance relative to Hewlett-Packard is probably better explained by the miserable future prospects for publishers compared to the much more moderate future prospects for computer companies.
  
  Why does this matter in a discussion of Warren Buffett?
  
  Because it illustrates the one future projection I do think Buffett makes. I think he looks out about 10 years and asks himself whether the company�� moat will be intact, its growth prospects will still be decent, etc.
  
  In other words: will this stock deserve to sell at a fairly high P/E ratio 10 years from today?
  
  Warren Buffett doesn�� want to buy a stock that is going to have its P/E ratio contract over 10 years.
  
  To put the risk of P/E ratio contraction in perspective, consider that Value Line traded at over 5 times sales and nearly 25 times earnings just 10 years ago. Whatever the company�� future holds, it�� unlikely we��l see the stock at those kinds of multiples any time soon. Publishers just don�� deserve those kinds of P/E ratios any more.
  
  So, how much the market will value a dollar of earning power at in the future matters. And that is one place where projecting the future is probably part of Buffett�� approach. This is mostly a tool for avoiding certain companies rather than selecting certain companies.
  
  For example, Buffett was willing to buy newspaper stocks in the 1970s but not the 2000s. The reason for that was ! that in t! he 1970s he thought he saw at least a decade of clear sailing for newspapers. In the 2000s, he didn��.
  
  Today, I think Buffett sees at least a decade of clear sailing for the railroads and for IBM. In both cases, his perception of their future prospects was almost certainly the last puzzle piece to fall into place. It wasn�� an issue of IBM (IBM) getting to be cheap enough. It was an issue of Warren Buffett being confident enough to invest in IBM.
  
  By the way, let�� look at IBM�� past record:
  
  10-Year Average Return on Assets: 10.3%
  
  10-Year Annual Sales Growth: 2.8%
  
  10-Year Annual Asset Growth: 1.9%
  
  As you can see, IBM isn�� much of a growth company. But that doesn�� mean the shares can�� be growth shares. IBM has improved margins and bought back stock. That has led to a 20% annual increase in earnings per share compared to just a 3% annual increase in total revenue.
  
  So can we answer the question of why Warren Buffett is interested in companies like IBM and Norfolk Southern (NSC) rather than Hewlett-Packard and Value Line?
  
  Well, Value Line is obviously too small an investment for Buffett. But we��e using it as a stand in for all the publishers Buffett once loved but now shuns.
  
  Buffett is a return on investment investor. He isn�� exactly a growth investor or a value investor ��if by growth we mean total revenue growth and if by value we mean the company�� value as of today.
  
  Buffett wants to compound his money at the fastest rate possible. So he looks at how much of the company�� sales, assets, etc. he is getting. Basically, he looks at a price ratio. And then he looks into the company�� return on its own sales, assets, etc. When you take those two numbers together you get something very close to a rate of return.
  
  The last part you need to consider is the change in assets versus the change in sales (and earnings). Does the company need to grow assets faster than earnings?
  
  Or ��like See�� Candy �! �can it ! grow sales a little faster than assets?
  
  Let�� take a look at Norfolk Southern as a good example of the kind of railroad Buffett would own ��if he didn�� own all of Burlington Northern.
  
  Norfolk Southern
  
  10-Year Average Return on Assets: 4.9%
  
  10-Year Annual Sales Growth: 6.0%
  
  10-Year Annual Asset Growth: 3.6%
  
  Now, how much earning power do you get when you invest in Norfolk Southern?
  
  Total Assets are $28.54 billion. And the market cap is $21.28 billion. So, $28.54 billion / $21.28 billion = $1.34 in assets for every $1 you pay for the stock today.
  
  Now, Norfolk Southern�� return on assets has averaged a little less than 5% over the last decade. But I think that ��like he does with IBM ��Buffett believes the current returns on assets of the railroads are sustainable. So, we are talking something in the 5% to 7% range for a railroad like Norfolk Southern.
  
  On top of this, he sees that the railroads have grown sales faster than assets. Now, we could do an elaborate projection of future margins, returns on assets, etc. to try to figure out what the railroads of the future will look like.
  
  Or, we could just assume that over the last 10 years, Norfolk Southern has grown sales about 2.5% a year faster than it has grown assets. And Norfolk Southern can earn 5% to 7% on its assets. As a result, an investor in Norfolk Southern will see his wealth grow by about 7.5% to 9.5% of the company�� assets he owns. This doesn�� sound like much. But, railroads use leverage. And they often have price-to-book ratios lower than their leverage ratios. As a result, investors can often buy more than $1 in railroad assets for every $1 they spend