3 Top Cheap Stocks to Buy Now

By Tyler Crowe Markets Fool.com

With the Dow Passing 20,000 and the S&P 500 trading at a pretty frothy valuation, value investors are probably a little concerned about the lack of deals in the market today. If you're one of those people looking to buy a stock on the cheap, options are getting fewer by the day. That being said, three companies that do look to still be bargains are offshore rig company Transocean (NYSE: RIG), Delta Air Lines (NYSE: DAL), and solar panel manufacturer First Solar (NASDAQ: FSLR). Here's a quick look at these three stocks and why they are cheap today.

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Drilling for some deep value

I think it's pretty safe to say that the oil and gas market has achieved a decent recovery. Oil prices are hovering around the $55 a barrel range as OPEC cuts back production and investors have stopped fearing the worst. One part of the industry that hasn't felt a recovery is the offshore market. For those really digging deep for a value stock, this makes Transocean a really interesting investment.

The reason offshore hasn't really picked back up yet is that we've found a new source of oil that has a quicker payback period: shale. The amount of time to go from an undisturbed field to a producing well is now measured in days instead of months. For producers that need to fill their cash coffers, this is a much more attractive option than the billions invested in an offshore project that will take years before generating cash.

Still, shale drilling can only fill so much need in the global oil market. Offshore oil will continue to play a decent role in filling that demand for several years to come. Transocean, coincidentally, is one of the best ways to invest in this trend. During this downturn, the company has completely transformed its fleet from one of the oldest on the water to a huge fleet of new, high-specification rigs that can handle the most challenging drilling demands today. It also helps that the company didn't break the bank building this fleet and sports a reasonable balance sheet.

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Today, shares of Transocean trade at an absurdly cheap price-to-tangible book ratio of 0.37. Any investor with a long-term outlook should view this as a time to buy Transocean's stock for pennies on the dollar of its liquidation value.

Less likely to crash and burn

Airline stocks have historically been some of the worst investments over the long term. The immense capital requirements have always put companies in problematic situations when passenger demand declines. Delta is no stranger to this situation, as it filed for bankruptcy protection back in 2005. Unlike last time, though, the company is in a much better position to handle any future market downturn.

The large decline in fuel prices has allowed Delta to produce loads of free cash, it has smartly used that cash to clean up its balance sheet. Over the past five years, Delta has reduced its total debt load by 43% to $7.5 billion. At the same time, it's carrying $3.2 billion in cash. With unit revenue modestly declining and non-fuel-related costs on the rise, having this kind of financial flexibility will go a long way in keeping the company from experiencing the same solvency issues it had before.

The company expects to return to increasing passenger revenue per available seat mile in the coming quarter, something that has eluded the company in the past couple of years. Part of that will be from controlling capacity (reducing total amount of flights means more seats filled per plane). Maintaining capacity discipline while passenger demand picks back up will go a long way toward improving margins.

So we have an airline that is much better positioned financially to handle the cyclical nature of the business, coupled with a management team that is showing a more prudent approach to growth. Those are the things you want to see, and to pick up shares at an enterprise value-to-EBITDA ratio of 4.6 looks like a pretty decent price to pay.

A bright spot in the solar market

First Solar is a solar stock, but that doesn't necessarily mean it's a growth stock. Projections for the industry show constantly how much it has grown in recent years and how much it expects to grow. The business of building solar panels, on the other hand, is a cyclical business and is notorious for seeing current offerings quickly becoming commoditized. That means it's a business that requires constant reinvestment, even when panel production goes through constant phases of over- and undersupply.

To handle this constant challenge, you need a company with a disciplined capital allocation approach and a balance sheet that can handle the ups and downs of the industry. First Solar has just that. Its $2 billion in cash on hand and almost no debt give it plenty of ballast to ride out the storms of the market. Also, the company has a unique panel technology that's typically less expensive to manufacture. The drawback for this technology has always been lower panel efficiency, but First Solar has raised panel efficiency into a more competitive range in recent years. These developments are part of the reason the company's return on invested capital has been the best in the business for most of the past decade.

With shares of First Solar trading at a very modest 0.62 times tangible book value, Wall Street is probably giving too much weight to the short-term cyclicality of the solar market. Sure, the next year and a half may be a tough one for solar panel producers, but First Solar has shown itself to be a company that can weather the storm and generate returns for investors.

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Tyler Crowe owns shares of First Solar. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.