15 Stocks That Hit The 'Deep-Value Trifecta'


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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 characteristics.

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" category.

You'llnote that insurers such as Protective Life ( PL ) , MetLife ( MET ) , Aspen Insurance Holdings ( AHL ) 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 now.

Atlas Air: Performing well in a bleak environment
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 dividends.

Puerto Rico-based First Bancorp ( FBP ) 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 economy.

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 climb.

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 stock.

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 even lower.

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 list.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Investing Ideas , Stocks
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