Everyone loves a great bargain, and the same logic also applies when it comes to investments.

The idea of paying sixty cents for something worth a dollar is inherently appealing.

When stocks are trading at cheap valuations , you can obtain a greater margin of safety and enjoy higher rates of potential return over the long-term.

However, it is fair to say that not every cheap stock represents a bargain.

You need to carefully assess the strength of the underlying business and evaluate the competitive edge a company has before making an investment decision.

That’s because stocks are typically cheap for a good reason.

The risk of falling into a value trap is all too real.

That said, here are three cheap stocks that you may find interesting, and that you may want to add to your investment watchlist.

Hour Glass Ltd 

The Hour Glass is a watch specialist that sells a variety of luxury brands such as Hublot, Rolex and Patek Philippe.

The group sells timepieces to watch enthusiasts and collectors and has a network of 45 boutiques in the Asia-Pacific region.

The Hour Glass’ shares have declined by 17.5 per cent year to date and currently trade at around 6.1 times historical earnings.

The group had just released its full fiscal year 2020 earnings for the period ended March 31, 2020.

Revenue was up 4 per cent year on year, while profit after tax rose 9 per cent year on year.

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Around $85 million of free cash flow was generated for the fiscal year, significantly higher than the previous year’s $47 million.

However, in a show of prudence, Hour Glass reduced the first and final dividend from $0.03 last year to $0.02 this year.

According to the Federation of Swiss Watch Industry, watch exports also saw a steep 81.3 per cent year on year decline in April, and the weakness continued into May with a 67.9 per cent year on year fall.

Singapore saw a 74.8 per cent year on year decline in Swiss watch export value in May 2020, from CHF 112.7 million (S$170 million) to just CHF 28.4 million.

In light of the above numbers, investors should brace themselves for a poor showing for The Hour Glass for the current fiscal year.

Centurion Corporation Ltd 

Centurion Corporation Ltd owns, develops and manages a portfolio of purpose-built worker accommodation (PBWA) assets in Singapore and Malaysia, as well as student accommodation assets in Singapore, Australia, South Korea, the UK and US.

The group’s portfolio consists of 33 accommodation assets totalling 65,133 beds as of March 31, 2020.

Centurion’s shares have declined by 21.7 per cent year to date and now trade at a trailing price-earnings ratio of around eight times (based on the fiscal year 2019’s full-year earnings).

The group provided a business update for the quarter ended March 31, 2020, with revenue increasing by 13 per cent year on year.

The occupancy rate for Centurion’s assets also improved by more than three percentage points year on year to 96.4 per cent.

In short, it seems the group’s portfolio has largely not been affected by the Covid-19 pandemic thus far.

However, Centurion did sound a note of caution.

The group expects escalating costs due to increasing operational requirements, and may also face an increase in debt delinquencies and longer collection cycles.

Another risk is Centurion’s high debt level of $724.8 million versus its cash balance of just $48 million.

The net debt position could spell trouble for the group as it navigates this sharp crisis.

Neo Group Ltd 

Neo Group is an integrated food solutions provider with its core business in food catering.

The group also supplies a variety of food to different market segments through its multi-brand offering.

Some of Neo’s well-known brands include Orange Clove, Deli Hub and Best Catering. The group also runs food and beverage outlets such as Umi Sushi.

Year to date, Neo’s share price has declined by 17.8 per cent, and its shares are trading at a trailing price to earnings ratio of around seven times.

The group is currently embarking on a vertical integration strategy by acquiring companies to boost its upstream supply chain.

By having more control over supplies, Neo can also better manage its mid-stream catering and food solutions operations.

The group recently acquired ER Group, a general wholesale trader and manufacturer of food products, to ensure the quality of raw material supplies and timely delivery.

Covid-19 will be a dampener for Neo’s catering business as fewer events are being held, thus impacting the demand for buffets spreads.

With the current Phase II re-opening, there is also a limit when it comes to invitations. A maximum of five people can be invited to a person’s house at any one time.

Because of this restriction, the demand for catering should also decline in the near-term.