5 Top-Rated Value Stocks

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.

The names Eugene Fama and Kenneth French may not come up in most dinner conversations, but the two have done some of the most compelling academic research on stocks that I've read. In contrast to the previous consensus of most academics, they've proposed that there's more to stock returns than volatility. 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 105,000 investors.

Company

Tangible Book Value Multiple

1-Year Change

CAPS Rating (out of 5)

USEC (NYSE: USU  )

0.5

(73.4%)

*****

Aspen Insurance Holdings

0.7

(6.7%)

*****

Aircastle (NYSE: AYR  )

1.1

(55.6%)

****

Duke Energy (NYSE: DUK  )

1.1

(9.4%)

****

Xcel Energy (NYSE: XEL  )

1.5

(11.8%)

****

Data from CAPS, Yahoo! Finance, and Capital IQ (a division of Standard & Poor's) as of May 16.

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. So I thought I'd dig in a little further to the story at Aircastle.

Leasing the friendly skies
High operating costs, soaring fuel prices, and cutthroat competition are making it hard for major airlines such as Continental (NYSE: CAL  ) , Delta, and UAL (Nasdaq: UAUA  ) to make any money. Mergers -- such as the one pending between Delta and Northwest (NYSE: NWA  ) -- seem to be one of the few options for fighting the pain, and nobody knows how many deals the Department of Justice will be willing to approve.

But with air travel now an indispensable mode of transportation, somebody has to be making money, right? On CAPS, many investors think Aircastle is a good bet. The company, partially owned by Fortress Investment Group, purchases passenger and cargo jets and then leases the planes on a long-term basis to airlines all over the world.

There is a catch, of course. Aircastle carries a significant amount of debt, and it relies on being able to issue new debt and securitize some of its lease contracts to buy more jets and grow its business. With the debt-market gods sending down thunderbolts galore lately, many investors have steered clear of companies such as Aircastle.

More recently, financing has started to look more promising, and the stock has rallied. Despite the run-up, though, the stock still trades at a low price-to-earnings ratio and carries a hefty 6.3% dividend yield. CAPS All-Star randyriv has been a fan of Aircastle since mid-2007 because of industry dynamics:

In order to both meet increased demand and replace existing supply, the airline industry will become increasingly dependent upon the use of leased aircraft. This puts companies like Aircastle at the forefront of an enormous growth opportunity moving forward. Combine that growth with a 6% dividend, and you have a winner in my book!

So what do you think? Are these stocks values, or value traps? Log on to CAPS, and let the rest of the 105,000-member community know what you think.

More CAPS Foolishness:

Duke Energy is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. The Fool's disclosure policy wouldn't know a value trap from a hole in the wall, but then again, the disclosure policy is just an inanimate collection of words.


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