6 Cheap Stocks That Climbed as the Market Cratered

Investors are always chasing outperformance. We want our stocks to not only do well, but also to perform better than a market index such as the S&P 500. After all, why take on more risk by investing in individual stocks, if you're not going to outperform an index?

The last month or so has seen huge volatility in the market, and the S&P has dropped 11% since its recent top on July 21. But some stocks didn't merely outperform; they actually gained on an absolute scale! So which ones have been the outperformers, and which might be likely to repeat the feat if the market continues its downward bent?

I ran a screen to see which stocks had gained in price since July 21. But I also wanted stocks that were cheap, to limit my downside, so I screened for P/Es below 10. I came up with 64 stocks in total; here are six of them.

Company

Gain

P/E

Dividend Yield

Annaly Capital (NYS: NLY) 2.6% 6.8 14.2%
American Capital Agency (NAS: AGNC) 0.5% 4.6 18.8%
Whiting USA Trust 1 (NYS: WHX) 4.4% 6.7 18.1%
Terra Nitrogen (NYS: TNH) 11.7% 9.1 8.7%
Central Fund of Canada (ASE: CEF) 2.5% 2.2* 0%
LDK Solar (NYS: LDK) 5.6% 2.3 0%

Source: Capital IQ, a division of Standard & Poor's. Price change from July 21 to Aug. 15.
*P/E based on appreciation of fund assets.

There's plenty of evidence suggesting that dividend stocks outperform, and we have some other evidence of that here, with dividend stars numbering among the best and cheapest performers.

One group of outperformers has been the mortgage REITs, such as Annaly and American Capital Agency. These stocks tend to perform well when the rest of the market is faring poorly, since they rely on low interest rates to fund their operations. And with business conditions improving even further, as I explain here, it looks like smooth sailing for these real estate investment trusts.

Whiting USA Trust 1 is also a REIT, and pays out income it receives from parent Whiting Petroleum Company (NYS: WLL) . The trust receives 90% of the net proceeds from Whiting's interests in various oil and gas properties across the United States. The trust will terminate as soon as it accrues proceeds from 8.2 million barrels of oil equivalent cumulatively. That figure stood at 3.9 million as of the end of 2010.

Terra Nitrogen produces and distributes nitrogen fertilizer products, and it looks like the attractive yield as well as tight industry dynamics have been driving up the share price.

Central Fund of Canada is a closed-end fund that invests in gold and silver bullion. With gold rising in recent times, as investors run for the hills, it's not too surprising that a name like this makes the list.

LDK develops and manufactures photovoltaic products used in solar-energy projects. The company recently bounced on news that it was involved in a 20-megawatt project with Chinese utility Datang International. And the company looks well positioned to score some sales from a 550-megawatt project in California, according to Fool Anders Bylund.

Foolish bottom line
While stocks can go up and down for many reasons, it's useful to know why they're moving, if you can determine it. Then you can potentially exploit the movement. Whereas I'm less sanguine about commodities names going into a soft spot in the economy, I'm particularly bullish on mortgage REITs like Annaly. Tough conditions for the economy actually help these guys out. Stable low interest rates are a boon to these players, and I think they can continue gushing their dividends to shareholders, despite carnage in the broader market. So keep an eye on these stocks with our watchlist feature:

At the time this article was published Jim Royal, Ph.D., owns shares of Annaly. The Motley Fool owns shares of Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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