Bargain-Hunting Funds at a Bargain-Hunter's Price

The stock market may have hit a rough patch these past few weeks, but stocks remain fairly valued in aggregate, according to Morningstar's equity analyst team. Given the uncertain environment, it makes sense to focus on investments where there still may be upside potential. And if you're investing via mutual funds, it pays to extend that bargain-hunting mind-set by honing in on reasonably priced offerings. After all, if returns are constrained in the future, every basis point counts.

With thrift in mind, we used the  Premium Fund Screener to screen our database for funds that appeal to budget-conscious investors on three levels: They have reasonable investment minimums, their costs are low, and they focus on cheap stocks.

We started with the value stock-fund categories, sifting through the distinct portfolios of small-, mid-, and large-value domestic stock offerings that were open to new investments of $3,000 or less. We layered on some expense screens and purchase criteria, kicking out load funds and offerings with expenses greater than 1.00%. Keeping in mind that value managers typically stick to a buy-and-hold strategy that demands a fairly long time horizon for their bets to play out, we didn't focus on short-term performance but did look for offerings whose 10-year returns rank in the top quartile during the trailing 10-year period. Finally, we required that managers have helmed the fund for at least five years. Premium Members can replicate this screen by  clicking here. The screener yielded 19 funds as of March 22, three of which we highlight below.

 American Century Equity Income (TWEIX)
Caution dominates at this fund, as managers Phil Davidson and his team subscribe to a value approach while actively avoiding firms that hold a lot of debt. The managers look for stocks that appear cheap on at least two valuation measures, such as P/E ratio and dividend yield. Thanks to its income mandate, the fund is typically heavily positioned in dividend-rich sectors like utilities, energy, and financials. Even so, the fund is well-diversified and includes both mid- and large-cap stocks. It's a contender as a core holding, even for conservative investors.

 Dodge & Cox Stock (DODGX)
This Morningstar Analyst Pick passes the bargain test on all fronts. Not only are its expenses and turnover rate among the lowest in its category, but its disciplined value-oriented approach has rewarded patient investors who have stuck by this fund through thick and thin. The portfolio is heavy with large-cap stocks with discounted prices, but management raises the quality bar by seeking companies that are industry leaders with good growth potential and solid management. While the fund is still working its way back from devastating losses during the last bear market, analyst Dan Culloton notes that contrarian holdings like  AOL  and  Nokia (NOK) boast cheap valuations and improving business fundamentals.

 Yacktman (YACKX)
This fund has shown its versatility over the past decade. As of early March, the fund was up 152% versus the S&P 500's 102% return since the market hit rock-bottom in March 2009, and it has demonstrated impressive resilience in bear markets, too. Managers Donald Yacktman, Stephen Yacktman, and Jason Subotky currently favor blue-chip mega-cap stocks with proven sustainable competitive advantages, like Coca-Cola (KO) and Microsoft (MSFT). However, the team will sometimes dip into more cyclical companies when values look compelling, as was the case from 1998 to 2002 and again in 2009. The fund's cash stake can be significant when the managers aren't finding anything to buy. Investors can rest assured that their money is in the hands of an experienced lead manager who helms a fundamentally sound portfolio with a strong long-term record to boot.