5 Top-Rated Value Stocks

Are you familiar with the dynamic duo of Fama and French? No, they didn't sing "Maneater" -- that was Hall and Oates. And no, they didn't star in Black Sheep -- 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 very interesting academic research on stocks. 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 book value. To focus on high-quality stocks, I've cross-referenced these against ratings in our Motley Fool CAPS community of more than 110,000 investors.

Company

Book Value Multiple

1-Year Change

CAPS Rating (5 maximum)

Lundin Mining (NYSE: LMC  )

0.6

(54%)

*****

SanDisk (Nasdaq: SNDK  )

0.8

(61%)

****

Valero Energy (NYSE: VLO  )

1.1

(50%)

****

OmniVision Technologies (Nasdaq: OVTI  )

1.2

(35%)

*****

CME Group (NYSE: CME  )

1.4

(36%)

****

Data from CAPS and Yahoo! Finance as of July 3.

Five years ago, U.S. Steel (NYSE: X  ) would have made this list with its 0.8 book-value multiple. Since then, the stock has caught a serious tailwind from global steel demand and is up 898%.

While we can't expect that all of these are going to perform like U.S. Steel, many in the CAPS community think these are some good choices when it comes to value stocks. With that in mind, I thought I'd dig in a little further on a couple of these stories.

Lundin Mining
Over the past year, natural resources has been one sector bucking the bearish tide. But as the divorce filing of Alex Rodriguez's wife shows, storm clouds can roll in even when things are going well.

Lundin Mining's stock started to tumble late last year when the company announced third-quarter earnings that missed analysts' expectations. Pessimism was cranked up another notch early in the new year when the company threw some water on Wall Street's revenue and cost expectations. A month later, Lundin followed up with its fourth-quarter results, including a nearly $500 million impairment charge that put the company's full-year earnings into the red.

But as fellow Fool Toby Shute recently pointed out, the Lundins are a "legendary mining clan" and the kind of hard-driving businesspeople you'd like to see behind your company. And the community on CAPS wholeheartedly agrees. Radioman101, one of the 906 Lundin bulls on CAPS, has been bullish on the company since early 2007. He wrote back then:

Zinc. Industrializing economies need it. Stockpiles are low, demand is high, supplies are tight. [Lundin] has good reserves being mined in politically stable countries in Europe. The zinc is associated with copper deposits so the per pound cost is reasonable thus better zinc margins.

A burp at the Chicago Merc
And if mining isn't your thing, then maybe CME Group, which is down by more than a third over the past year, is a more interesting story. CME aggressively grabbed a big piece of the pie in the options and futures market when it merged with the Chicago Board of Trade (CBOT) last year, and it's going after another big slice with its outstanding offer for NYMEX (NYSE: NMX  ) .

However, concerns about falling volume on its exchanges, as well as the specter of competition, have led to its shares sliding. Though CAPS players are not as positive about CME as they are about Lundin, the stock still sports a quality four-star rating. Last year, MFBriguy had this to say when he gave the stock a thumbs up:

Scalability of business model makes this an outstanding long-term investment. It does not and probably will not look cheap by conventional measures, but [it's] poised to grow in the 20-30% range for several years while maintaining or expanding profit margins of 30%. Barely scratching the surface in Asia and even Europe.

So what do you think? Are these stocks values, or value traps? Log in to CAPS and let the rest of the 110,000 members know what you think.

More CAPS Foolishness:

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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  • Report this Comment On March 06, 2009, at 11:44 AM, Inthebreadline wrote:

    Here's what Dorfman over at Bloomberg was saying about GM in 2005: Despite its many problems, I think General Motors is a good buy for patient holders at the present price of about $32. That works out to 0.71 times book value and 0.09 times revenue. The dividend yield is 6.3 percent. Book Value don't mean squat when you can't pay the bills.

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