Over the past few years, many fund managers have made the same complaint: “It’s hard to find deep values in this surging bull market.”

#-ad_banner-#Now they can stop complaining.

The steady erosion in the small cap side of the market — defined as companies with a market value between $100 million and $2 billion — means that dozens of companies now trade for less than 10 times projected 2014 profits. In fact, a recent screen reveals more than 100 such stocks. I narrowed this group down to a manageable few dozen by excluding banks, insurers, real estate investment trusts and master limited partnerships. It’s not that these groups don’t hold appeal. It’s just that a price-to-earnings, or P/E, ratio is not necessarily the best way to assess them.

With a narrowed list, it becomes apparent that some stocks are absurdly cheap. Yet they’re cheap for a reason. Their businesses are in trouble. Here’s a look at a handful of ultra-cheap small caps and the reasons they are so heavily-discounted.

Some of these companies could still turn out to be great bargains. For example:

I expect regulators to levy stiff fines on World Acceptance Corp. (Nasdaq: WRLD), which would send shares sharply lower.  But if the company gets off easy, then shares could rally nicely higher.

PDL BioPharma, Inc. (Nasdaq: PDLI), which acquires and licenses biotech patents is intriguing, sporting solid value and an impressive dividend yield. But short sellers think the company’s business model will flounder.  

Pacific Ethanol, Inc. (Nasdaq: PEIX), along with Green Plains Renewable Energy, Inc. (Nasdaq: GPRE) and Rex American Resources Corp. (Nasdaq: REX), is under pressure on concerns that an imminent expansion in Brazilian ethanol imports will lead to a saturated market. That could spell market share losses and falling ethanol prices for the domestic players.

I prefer to avoid such ultra-cheap yet controversial stocks and would rather focus on stocks with less controversy but still represent solid bargains. Here’s a short list of small cap stocks that trade for less than ten times earnings.

Value-priced but out-of-favor

Scanning through the list, automotive drivetrain manufacturer American Axle (NYSE: AXL) stands out for a P/E multiple that is less than half of the market average. It’s P/E ratio is several notches below its peer group, in part due to a fairly high debt-to-equity ratio that stands above 1.5. That could spell trouble if the auto industry slumps badly, though that doesn’t appear likely any time soon.

The appeal of this company is found in its customer mix. American Axle sells a range of subcomponents that are used in full-size pickup trucks made by General Motors Co. (NYSE: GM), Dodge and others. If the housing market slowly rebounds, as I suspect, then demand for pickup trucks used in by contractors and subcontractors will surge. Before then, this company is already benefiting from a shift towards higher-margin advanced componentry. Per share profits are expected to rise from $1.74 last year to more than $2.50 next year.  That suggests a PEG ratio (P/E ratio divided by the earnings growth) rate well below 1.0.

After plunging 50% from its 52-week high, internet firm Blucora, Inc. (Nasdaq: BCOR) now trades for just eight times projected 2014 profits. The company operates in internet search, tax preparation and e-commerce. The stock plunged earlier in 2014 after the company took note of slowing top-line growth. In fact, sales growth is flattening in 2014 and 2015. To be sure, the company’s search business doesn’t hold great appeal, and the e-commerce division is still in its early stages of growth. But Blucora’s TaxAct division appears quite stable, generates impressive cash flow and is likely worth more than the company’s entire stock price, in an apples-to-apples comparison with other tax providers. As year-over-year quarterly comparison will be challenging for the rest of this year, this is a good stock to research now and prepare to buy once the tough Q3 and Q4 comps are out of the way.

Lastly, shares of EBIX (Nasdaq: EBIX) may benefit from a short squeeze and move nearly 50% higher, as I noted a month ago.

Risks to Consider: These are small caps, which have not been a safe haven in this market recently. So if the market gets even more jittery in coming weeks and months, then these low P/E stocks may see their P/E ratios move even lower. Still, it’s better to own a low P/E stock than a high P/E stock in a nervous market.

Action to Take–> Almost all of these stocks in the tables above are far from their 52-week highs. They have all been hit by negative catalysts and are out of favor at the moment, which paradoxically, makes them worthy of further research. Once they see a shift from headwinds to tailwinds, they won’t likely be single-digit P/E stocks any more. Of all the stocks I’ve discussed here, American Axle stands out as the most compelling value play. The fact that growth prospects are also in place heightens the appeal.

Today’s small caps can be seen as tomorrow’s blue-chips and no one knows about stocks that bust through that barrier better than my colleague Andy Obermueller. Andy is the chief investment strategist for the premium newsletter, Game-Changing Stocks, which is dedicated to finding the next company and trend that will move the markets — sometimes turning small companies into S&P 500 behemoths. In fact, he recently released a report on the subject, “The Hottest Investment Opportunities For 2015.” For more information, click here.