Are you familiar with the dynamic duo of Fama and French? No, they didn't sing "Private Eyes" -- that was Hall and Oates. And no, they didn't star in Tommy Boy -- that was Farley and Spade.
While the names Eugene Fama and Kenneth French may not come up in most dinner conversations, the two have done some of the most interesting academic research on stocks that I've read. In short, they've proposed that there's more to stock returns than volatility, which was most academics' previous consensus. In research they conducted over various periods and across multiple geographic locations, Fama and French determined that stocks characterized as "value stocks" have consistently outperformed non-value stocks.
Today, I've rounded up five value stocks that are all trading at less than 1.5 times their tangible book value. To focus on high-quality stocks, I've cross-referenced these against ratings in our CAPS community of more than 97,000 investors.
|
Company
|
Tangible Book Value Multiple
|
1-Year Price Change
|
CAPS Rating (out of 5)
|
|
Apollo Investment (Nasdaq: AINV)
|
0.9
|
(25.3%)
|
*****
|
|
International Rectifier (NYSE: IRF)
|
1.0
|
(37.6%)
|
*****
|
|
Consolidated Edison (NYSE: ED)
|
1.3
|
(21%)
|
****
|
|
Tesoro (NYSE: TSO)
|
1.4
|
(48.2%)
|
****
|
|
Zenith National Insurance (NYSE: ZNT)
|
1.4
|
(20.9%)
|
*****
|
Data from CAPS, Yahoo! Finance, and Capital IQ as of April 18.
Though the CAPS community obviously likes these stocks, I would advise against investing in any of these on the basis of this one metric alone. With that in mind, I thought I'd dig a little further into the story at Consolidated Edison.
Skipping the excitement
If adventure and excitement are what you crave from your investments, Con Ed may strike you as particularly sleepy. The company's primary business is providing electric power to nearly all of New York City and most of Westchester County, and gas and steam power to parts of New York. Hardly a business that's suddenly going to make you rich, but also one that is unlikely to collapse no matter how bad the market gets.
The past year, however, has shown that Con Ed's stock is not completely immune to fluctuations. The decline has left the stock not only cheap as compared to Con Ed's trading history, but also as compared to comparable utility companies like Public Services Enterprise Group (NYSE: PEG) and PG&E (NYSE: PCG). In addition to the potential capital gains that the cheap price offers, though, dividend lovers will definitely notice the fact that Con Ed's current dividend yield is over 5.5%.
On CAPS, the stock has made the list of professional managers like David Dreman, and also some of the top-ranked CAPS players. CAPS All-Star chk999longonly gave Con Ed a thumbs-up back in February and provided the simple thesis:
This is Con Ed, the big boy! With the high dividend, this only needs a little bit of upside to outperform. It's not like people are going to stop using electricity any time soon.
More recently, nrbonner also rated Con Ed an outperformer, emphasizing its dividend yield and steady cash flow. He called it "boring but very profitable."
So what do you think? Are these stocks values or value traps? Log onto CAPS and let the rest of the 97,000-member community know what you think.
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