7 Stocks at Bargain Prices

Founded in 1999, Blue Nile already has an estimated 4% share of the $5-billion U.S. diamond-engagement-ring market (average price: $6,200). With Web sites in Canada and the United Kingdom, it has begun to penetrate the international market. Last year, foreign sales more than doubled.

This year, however, analysts expect flat earnings, ending a three-year period during which profits rose 20% annually. Slowing sales and the recent resignation of Blue Nile's chief financial officer have brought the share price down from the stratosphere. The stock still doesn't look cheap at 47 times expected 2008 earnings.

But because of its low operating costs, Blue Nile should weather a downturn better than its brick-and-mortar competitors and perhaps pick up market share. It generates a lot of cash from operations, has more than $100 million in the bank and has little need to raise outside capital. It's only a matter of time before this young company's robust growth resumes.

Blueprint for success

Major construction projects can involve as many as 200 trades, from carpenters to elevator installers, all of whom rely on blueprints to communicate instructions. Thousands of prints may be generated in the course of erecting a single large building. The reprographics industry, which handles the printing, storing and distribution of these blueprints, is highly fragmented. More than 3,000 businesses serve mostly local and regional markets in the U.S.

One big exception is American Reprographics. With 307 branches in 39 states, it has ten times the reach of its next-largest competitor. It uses its clout to lure big players, such as Boeing and Turner Construction, to demand big discounts from reprographic-equipment suppliers and to license its in-house document-management software to other firms in the industry.

But about 80% of American Reprographics' business is tied to construction, most of it nonresidential. And with residential construction in a funk and other construction on the brink of one (Goldman Sachs forecasts declines in U.S. nonresidential construction spending of 10% in 2009 and 5% in 2010), investors seem skeptical that the company can achieve its 2008 forecast, which calls for a 5% to 10% rise in revenues and profits that will be flat to 6% higher. At $15, the stock ( ARP) sells for 56% below what it fetched a year ago.

But chief executive K. "Suri" Suriyakumar insists the Walnut Creek, Cal.-based company will do just fine in a downturn by pressing its size advantage to win more national accounts. "We are the 800-pound gorilla in the industry," he says. "We are in a unique situation in which we can serve large customers who want to reduce their costs in a downturn."

American Reprographics has bought more than 120 rival firms since 1997. Thanks in part to its active acquisition program, operating profits have climbed an annualized 26% over the past ten years, and the company generates plenty of cash, even in downturns. Granted, a nonresidential construction slump could slow things down for a while. But at ten times analysts' expected 2008 earnings, American Reprographics shares look like a bargain.

Cheap appliance maker

When the economic going gets tough, chances are that consumers will purchase fewer hair dryers, curling irons, foot baths and other personal-care appliances. That's why the shares of Helen of Troy ( HELE) have fallen deep into bargain territory, down 45% since the summer of 2007. At $16, they trade for ten times analysts' expected profits for the year ahead.

Helen of Troy sells a vast array of appliances, housewares, and grooming and hair products, under a variety of well-known brand names, including Sunbeam, Revlon, Vidal Sassoon, Dr. Scholl's and Brut. In the quarter that ended last November, sales in its personal-care segment, which excludes housewares, fell 6% from the year-earlier period -- a bad omen.

But the company, founded by chief executive Gerald Rubin (who still runs the business), showed during the 2001 recession that it can continue to generate profit growth even in a weak economy. Meanwhile, sales of kitchen gadgets and other housewares (about 25% of revenues) rose 19% in the November quarter and are expected to continue growing. The operating profit margin (profits from operations divided by sales) also rose as the company cut manufacturing and administrative costs and adjusted its product mix to emphasize more-profitable items.

The company, which is incorporated in Bermuda but bases its operations in El Paso, Tex., has more than $100 million in cash. Rubin recently told analysts that he expects that within a year, the company will have nearly enough cash to pay off its $215 million in outstanding debt. Either way, Helen of Troy should surprise the skeptics in the coming year.