Though value investors have been some of the most successful investors out there, finding good stocks at bargain prices is far from easy. Though markets aren't as efficient as some university professors may want to tell you, they generally do a pretty good job pricing stocks. So while there are good deals out there, you're going to have to break a bit of a mental sweat if you want to make sure that you're investing in the stock equivalent of Brad Pitt, not Kato Kaelin.
Fortunately for us, in the search for stock market values, we have the 160,000-plus members of The Motley Fool's CAPS community voting on which stocks are true stars and which are just posers. To gather some ideas I've dug up a handful of companies valued at less than twice their book value -- a measure often used by value investors.
|
Company
|
Book Value Multiple
|
1-Year Stock Performance
|
CAPS Rating (out of 5)
|
|
National Bank of Greece (NYSE: NBG )
|
0.7
|
(29.3%)
|
***
|
|
Radian Group (NYSE: RDN )
|
0.7
|
858.2%
|
**
|
|
Hurco Companies (Nasdaq: HURC )
|
1.1
|
41.3%
|
*****
|
|
Goldman Sachs (NYSE: GS )
|
1.3
|
26.6%
|
**
|
|
Verizon (NYSE: VZ )
|
2.0
|
(5.9%)
|
****
|
Source: Yahoo! Finance and CAPS as of April 27.
As you can see, though these stocks all carry value-like multiples, the CAPS community obviously doesn't think that all are worthy of your investment dollars.
No twinkle in these stars
Woe is Goldman Sachs. The company went from being the toast of Wall Street to the subject of an SEC lawsuit and a broader tar-and-feather campaign by Main Street and Congress. Not that they appear particularly undeserving.
As I argued yesterday, what's going on with Goldman is not bad for only Goldman, but for other major banking houses like Morgan Stanley and JPMorgan Chase (NYSE: JPM ) . Though the proceedings are a bit of a three-ring-circus with Goldman, it does signal that we'll likely see the boom lowered on the banking industry. Of course, with a two-star rating on Goldman, the CAPS community seems to be all over the risks already.
During the financial meltdown and recession there seemed to be some businesses that were just destined to fail. Radian -- which at the time of the panic was insuring residential mortgages, municipal bonds, and structured finance transactions and was working with credit default swaps -- seemed like a shoo-in for failure.
Despite massive losses, the company has somehow managed to survive. Its survival has been a serious windfall for investors who jumped in when Radian's stock was trading below $2. But the question today is whether the stock is still a deal at $16. And while its price-to-book ratio does look low, the company was still reporting losses at year-end and may continue to cough up red until the housing market fully recovers. And that means that its falling book value may make take the "value" out of that valuation before too long.
As for National Bank of Greece, I don't think we have to burn too many cycles trying to figure out why CAPS members are cautious. Though the bank has stayed profitable through the recession, with the exception of last quarter, the bank may find it tough to avoid taking a blow from the Greek government's troubles.
Standard & Poor's just cut the bank's credit rating to junk, citing its exposure to Greek government bonds and the fact that Greece's economy will likely deteriorate through this year as the government tries to clean up its act.
A five-star is born!
Now that we've left the riffraff behind, we can move onto a stock that might actually be worthwhile, Verizon. Sure, the company is locked in a do-or-die battle with chief competitor AT&T (NYSE: T ) and it looks like the company really needs Apple to hand over the keys to the iPhone kingdom in order to re-energize growth. But is that what investing in Verizon is really about?
Don't get me wrong, that would certainly be a good thing for Verizon, but the big boon for investors is the massive river of cash flow that gushes from the company. For the 12 months ending in March, Verizon pumped out $32 billion in cash flow from operations and spent slightly more than half of that on capital expenditures. And the company isn't stingy about the cash it rakes in -- currently Verizon's stock yields 6.6%.
But as much as CAPS members like Verizon, the stock is one star short of topping this week's top value stock, Hurco.
With a market cap of $123 million, Hurco is a tiny company. It's also unprofitable. But what it does have going for it -- besides its low valuation -- is the potential slingshot effect of the improving economy. As an industrial equipment manufacturer, Hurco was hit particularly hard by the recession, but it also stands to see its fortunes change drastically for the better as the economy rebounds.
Though Mr. Market apparently doesn't see the potential for a Hurco comeback, the CAPS community does. Currently, more than 1,600 members have given Hurco a thumbs-up versus just 24 that think it will lag the market. CAPS All-Star cibient is one of those bulls and offered this pitch in October of last year:
Beaten down in sales, but they have managed to preserve their balance sheet ... I still see Hurco growing faster than their peers going forward, especially once this becomes an earnings machine again based on economies of scale. If you believe the manufacturing sector will return, Hurco should shine. This is in my real portfolio.
Make your vote count!
Do you agree that Hurco could be America's next top value stock? Click over to CAPS and let the rest of the community know what you think. And while you're there, you can log your vote for the other stocks that you think should be in the running.
What's better than an outperformer? An outperformer that nobody else knows about.
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