3 Deep Value Stocks - Investment Ideas
18 Octobre 2012 - 2:00AM
Zacks
There are many ways to value a company. One of the most
conservative ways is to take the value of a company's assets and
subtract its liabilities. What's left over is the company's
book
value.
Of course, the value of a company's assets and
liabilities are often subject to estimates by management and can
include hard-to-measure intangibles like goodwill, patents and
intellectual property. But if you strip out intangible assets and
focus just on hard assets, and subtract the liabilities, you're
left with the more conservative tangible book value.
Essentially, this is the what's left over for
shareholders if a company were to liquidate all of its assets and
pay off all of its obligations.
Catch-22
So how much are you willing to pay for a company's
net assets? This usually depends on a how well the company is
doing. Typically companies with strong returns on equity (ROE) and
thus growing book values trade at high multiples to their book
value.
But historically, stocks that trade at low price to
book (P/B) multiples tend to outperform those with high price to
book multiples.
S&P Cheap by Historical Standards
Currently the median price to book multiple on the
S&P is 2.6, well below its 10-year median of 3.6. And the
median ROE is increasing. That's a sign that the stock market may
be undervalued.
And if you look hard enough, there are some great
values out there.
3 Cheap Stocks
Theoretically a company shouldn't trade below its
tangible book value. But I've found 3 that are currently doing just
that, while also maintaining a solid ROE.
In other words, if these companies were to cease
operations today, sell off all of their tangible assets and pay off
all of their liabilities, what's left over would be worth
more than their current stock price.
1. Fly Leasing Ltd (FLY)
Return on Equity (TTM): 17.0%
Return on Equity (5yr Avg): 11.5%
Price to Book Value: 0.7
Price to Tangible Book Value: 0.7
2. Tech Data Corp (TECD)
Return on Equity (TTM): 10.8%
Return on Equity (5yr Avg): 8.9%
Price to Book Value: 0.9
Price to Tangible Book Value: 0.9
3. Kelly Services (KELYA)
Return on Equity (TTM): 9.6%
Return on Equity (5yr Avg): 3.6%
Price to Book Value: 0.7
Price to Tangible Book Value: 0.8
The Bottom Line
Think of tangible book value as what would be left
over for shareholders if a company were to liquidate all of its
assets and pay off all of its obligations. It is rare for stocks to
trade below this level, especially ones with positive returns on
equity. But these 3 are currently doing just that.
Todd Bunton is the Growth & Income Stock
Strategist for Zacks Investment Research and Editor of the Income
Plus Investor service.
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FLY LEASING LTD (FLY): Free Stock Analysis Report
KELLY SVCS A (KELYA): Free Stock Analysis Report
TECH DATA CORP (TECD): Free Stock Analysis Report
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