Is Now the Right Time To Get Into These 3 Discounted Stocks?

With the market around new highs, four financial companies still appear attractively valued.

Apr 8, 2014 at 7:07AM

Book value is one of many ways investors can value a company and a comparison with the stock price can give an indication about whether a company qualifies as a value stock. Even after a strong run by stocks last year, some major companies still trade below book value and I'll take a look at four of them here.

Source: Flickr / Samuel John.

Banking giant
Investor concerns continue to surround Bank of America (NYSE:BAC) as the bank pays out multi-billion lawsuit settlements on a quarterly basis. But the bank has made a lot of strides in its turnaround. Each lawsuit settlement is one B of A doesn't have to worry about in the future, earnings are back on track, and the bank passed the Federal Reserve's stress tests yet again.

With book value around $21 and shares trading under $17, B of A trades around 80% of its book value. In its latest capital return plan, B of A calls for repurchasing some of its shares at these below book value levels in the form of a $4 billion stock buyback. With shares at their current levels, this buyback should help boost book value per share provided the bank does not issue too many additional shares as executive compensation.

Disappointment again
The biggest loser among the big banks from the stress tests was Citigroup (NYSE:C) which saw its capital return plan rejected. Originally targeting a $6.4 billion stock buyback and raising its quarterly dividend to five cents per share, the Fed shot down this plan only allowing the bank to continue its $1.2 billion buyback program and pay its measly one cent quarterly dividend.

Shares were off over five percent on the news establishing Citigroup as a value play rather than a dividend one. At around 70% of book value, Citigroup is cheaper on a book value basis than almost any other U.S. based bank. Further enhancing the value aspect is Citigroup trading around 80% of tangible book value, a figure that excludes many numbers that are easier to manipulate.

Citigroup still carries above average risk due to its exposure to emerging markets however, having a presence in these markets should give the bank an edge in long term growth. This is definitely not a dividend pick but it remains an excellent value in an industry that saw major rallies last year.

The big insurance blow up
American International Group (NYSE:AIG) is practically the face of corporate bailouts from the financial crisis. But since then, AIG has been selling off non-core assets and setting itself back up as a solvent major insurance company.

Despite all this, AIG still trades at around 70% of book value, a major discount compared to industry peers. Over the next few years, AIG shares could move closer to book value as profits rise due to higher interest rates and the AIG dividend moves closer to the levels offered by rivals.

Value in financials
With so many investors afraid that the current market is overvalued, it's worth taking a look at large cap companies trading at less than book value. While book value should not be used as a sole determinant for investing, in can help gauge valuations compared to peers.

For investors not looking for big dividends but still in search of value in this market, these three companies are a good place to start.

One major growth pick for banking
There's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banks. That's bad for them, but great for investors. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

Alexander MacLennan is owns the following options: long AIG warrants, long January 2015 $20 calls on Bank of America, long Bank of America Class B warrants, long January 2015 $40 calls on Citigroup, long January 2015 $45 calls on Citigroup, long January 2015 $50 calls on Citigroup.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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