7 Stocks at Bargain Prices

Critics say the root of the problem is a system in which those with the most to gain from a favorable rating -- the bond issuers -- are the ones paying for the ratings. Any reform of the system would have a major impact on S&P. Meanwhile, few new mortgage securities are being issued, and S&P's profits are suffering as a result.

But the chance that new laws or regulations would force bond raters to change their business models is small. And the status quo favors S&P, which rates $32 trillion worth of debt in more than 100 countries and has an unassailable position.

Concerns about S&P's near-term performance, however, are real. The financial-services firm accounts for 45% of McGraw-Hill's revenues and three-fourths of its operating profits. In March, McGraw-Hill, which is headquartered in New York City, warned that it wouldn't hit its 3%-to-5% target for full-year earnings growth.

But while the uncertainty is unsettling, it should be put in proportion. S&P's business of rating new securities accounts for only some 15% of McGraw-Hill's total revenues, according to analyst Wendy Walker, of Argus Research. And the long-term outlook is solid. "There will always be new investment products that need to be rated," says Robert Millen, co-manager of Jensen fund, which owns McGraw-Hill shares.

S&P has other businesses, including research, data and the licensing of its stock-market indexes. McGraw-Hill is also a dominant player in textbooks, and its media division includes such well-known brands asBusinessWeekmagazine and J.D. Power and Associates, which conducts customer-satisfaction surveys.

McGraw-Hill shares sell for just 13 times this year's expected earnings, and they pay a dividend, currently at a rate of 88 cents a year, that has risen an average of 10% annually over the past 34 years (the stock yields 2.4%).

Transportation supplier

Trinity Industries is the nation's largest manufacturer of railcars, an industry that is leveling off after several years of explosive growth. The slowdown is evident in Trinity's backlog of orders, which slipped to $2.7 billion at the end of 2007, down from $2.9 billion a year earlier.

But given that nearly half of the nation's railcars are at least 25 years old and their average life span is 35 years, it's only a matter of time before demand picks up again. You'd hardly know that from Trinity's stock ( TRN), which is down 50% from its 52-week high.

Meanwhile, Trinity, a member of the Kiplinger Green 25, has several other lines of business that are doing well. It is the nation's largest manufacturer of inland barges (the order backlog for these has almost doubled over the past year, to $753 million), and its construction-products group, a play on rising infrastructure spending, sells more highway guardrails and crash cushions than anyone else. It also makes towers for wind-powered turbines, a business that has seen revenues leap from $11 million in 2004 to an expected $380 million this year.

Eric Marshall, co-manager of the recently launched Hodges Small Cap fund, says one of the reasons he likes Dallas-based Trinity is that one-third of its business is not tied to railcar manufacturing. The non-railcar businesses "will contribute to growth even though '08 won't be a great year for the railroad business," he says.

At $25, the stock now trades at just seven times expected 2008 earnings -- well below Trinity's historical P/E. That may be due in part to concerns that Trinity's growing railcar-leasing business uses a lot of borrowed capital at a time when the credit markets are in turmoil. But the company has a solid balance sheet, hasn't missed a dividend payment in 44 years and could even repurchase up to $200 million of its shares this year and next.