Value investors tend to favor specific gauges to find
bargains. Some like to seek outstocks trading below tangiblebook
value , while others seek out stocks that sport low
price-to-earnings (P/E )multiples or impressivefree cash flow
But why not focus on all three gauges?
I ran a screen to find stocks that press all the buttons,
targeting only companies with amarket value above $500 million
and 2014 P/E multiples below 12. To preserve a nicemargin of
error for downside protection, I narrowed the list to stocks
trading for less than 95% of tangible book value.
Here's what I found.
Of course, these numbers are just a starting point, and the
seemingly least expensive stocks aren't always the top bargain.
Case in point:
Century Aluminum (Nasdaq: CENX)
, which holds a trove ofundervalued assets parked on itsbalance
sheet but is struggling to generate profits in an era of
depressed aluminum prices.
Yet some of these stocks fall into the "no-brainer"
You'llnote that insurers such as
Protective Life (
Aspen Insurance Holdings (
and others make the cut here. These insurers are trading at a
sharp discount to tangible book value because they are not seen
as timelyinvestments in the current low interest-rate
environment. If you've got a multi-year time frame, then
insurance stocks are some of the best bargains in themarket right
Atlas Air: Performing well in a bleak
Digging more deeply into these stocks, it's hard not to be
impressed by air freight carrier
Atlas Air Worldwide Holdings (Nasdaq: AAWW)
. Global trade flows have been weak since 2008, especially as
European economies continue to struggle. That's had a negative
impact on air freight volumes and air freight pricing. Still,
Atlas has managed to generate an average of $200 million in
annual free cash flow during the past four years.
Then again, the weak globaleconomy is impeding Atlas'pricing
power . Even asrevenues are expected to rise more than 10%
thisyear (to around $1.85 billion) thanks tomarket share gains ,
per-share profits are stuck in the $5 range. That's the result of
a margin squeeze due to a lack of pricing power. Perhaps that
flatprofit outlook explains whyshares have drifted lower during
the past few years.
Simply movingback up to tangible book value would bring thisstock
to $48, though the free cash flow potential in an eventually
firming global economy wouldyield much moreupside than that.
First Bancorp: waiting on thedividend
Thanks to a set of restrictions associated with the U.S.
bankbailout program, many banks have been compelled to shore up
their balance sheets. In many cases, that meant eliminating their
First Bancorp (
would have done so anyway. Thelender -- which, in the middle of
the past decade, used to pay a $4 annual dividend, thanks to
annual pretaxincome that typically hovered around the $100
million mark -- took a big hit from a weakening Puerto Rican
Between 2009 and 2011, First Bancorp generated a hefty pretax
loss as sour loans were written down, and a rebound to $36
million in pretax income in 2012 was still subpar. Yet this bank
now appears to be on the mend, earning roughly 10 cents a share
per quarter, and annualized pretax income is back up to the $70
million range (based on the past twoquarters ) and continues to
Although this bank's share count is far higher than a
half-decade ago thanks to hefty issuances ofpreferred stock ,
First Bancorp now looks poised to restart the dividend in coming
quarters. As an addedkicker , shares trade for less than 5 times
projected 2014 profits and less than 90% of tangible book value.
These are the kinds of measures you want to see in a deep-value
Risks to Consider:
Low valuations provide only a general, non-specific floor for
a stock, meaning the price-to-book ratio or P/E ratio can drop
Action to Take -->
The second quarter has gotten off to a rough start, and investors
are increasingly seeking out stocks that appear to hold solid
downside protection with upside catalysts. These stocks, which
prove three types ofsupport , should be on your research