Are you familiar with the dynamic duo of Fama and French? No, they didn't sing "Maneater" -- that was Hall and Oates. And they didn't star in "Baby Mama" -- that was Poehler and Fey.
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 -- contradicting 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 two times their book value. To focus on high-quality stocks, I've cross-referenced these against ratings in our CAPS community of more than 120,000 investors.
|
Company
|
Book Value Multiple
|
1-Year Change
|
CAPS Rating (max 5)
|
|
SanDisk (Nasdaq: SNDK)
|
0.4
|
(80%)
|
****
|
|
Yamana Gold (NYSE: AUY)
|
0.5
|
(69%)
|
*****
|
|
Duke Energy (NYSE: DUK)
|
1.0
|
(15%)
|
*****
|
|
General Electric (NYSE: GE)
|
1.7
|
(53%)
|
****
|
|
Noble (NYSE: NE)
|
1.7
|
(39%)
|
*****
|
Data from CAPS. Capital IQ, a division of Standard & Poor's, and Yahoo! Finance as of Oct. 17.
Five years ago Transocean (NYSE: RIG) would have made this list with its 0.6 book value multiple. Since then, the stock has been on a massive bull run, rising more than 300% over that period.
While we can't expect that all of these stocks will perform like Transocean, the CAPS community thinks that these are some good choices for value stocks. With that I mind, I thought I'd dig in a little further on General Electric.
Where is the value?
To get a sense for just how much of a punch GE packs, we really need to dig into exactly what the company does. Different people know GE for different things -- consumers may know them primarily for their appliances or their NBC subsidiary, while airplane mechanics and manufacturers may be more familiar with them for their jet engines or commercial financing. Heck, Thomas Edison fans may still think of light bulbs when they think of GE.
In fact, GE has a mind numbing number of different businesses, including all of the above, medical technology, asset management, oil and gas production, alternative energy, and diesel-electric locomotives. And that's not even an exhaustive list.
Unfortunately for GE and its investors, though, the company's financing arms have brought a lot of negative attention to the stock over the past year. GE shares have fallen more than 50% from their 52-week peak. However, if the company's third-quarter report is any sign of things to come, it may pay off to consider GE while it's down. Overall profit from continuing operations for the quarter fell 12%, but most segments saw profit growth, including a 31% jump in the energy infrastructure division.
As expected, the finance segment was a drag on results, with profits dropping 33% from the prior year. However, this pales in comparison to the declines that financial companies like Goldman Sachs (NYSE: GS) have seen -- its most recently completed quarter showed a 71% plunge in profit from the prior year.
Though GE's stock is a star short of a perfect five-out-of-five rating, there are more than 10,000 CAPS members bullish on the stock, including nearly 2,000 of CAPS' All-Star members. Windyposter recently weighed in positively on the stock, noting a bright future ahead:
There are still back orders on the 'clean' jet engines, there is a two year back log of orders on wind turbines and even the clean diesel engines for locomotives are in demand. Now they are adding to their medical branch with one time use supply company purchase. There is no where for them to go but up in the long run. Anyone not adding these to their portfolio on the way down and on the way up is missing a very lucrative boat.
So what do you think? Are the stocks in this group values, or value traps? Log onto CAPS and let the rest of the 120,000 member community know what you think.
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