America's Next Top Value Stock

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 tell you, they generally do a pretty good job of 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 Johnny Depp, not Kato Kaelin.

Fortunately for us, in the search for stock market values, we have the 120,000-plus members of The Motley Fool's CAPS community voting on which stocks are true stars and which are 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
(5 max)

XL Capital

0.3

(87%)

*

Sprint Nextel (NYSE: S  )

0.5

(80%)

**

United States Steel (NYSE: X  )

0.6

(66%)

***

Dow Chemical (NYSE: DOW  )

1.2

(45%)

*****

NVIDIA (Nasdaq: NVDA  )

1.9

(76%)

****

Source: Capital IQ, a division of Standard & Poor's, Yahoo! Finance, and CAPS as Nov. 7, 2008.

Although these stocks carry value-like multiples, you can see -- via their star ratings -- that the CAPS community doesn't think all of them are worthy of your investment dollars.

No twinkle in these stars
It's been a static-y connection between Sprint and Nextel ever since Sprint acquired its competitor in 2005. Competition from the likes of Verizon (NYSE: VZ  ) and its lauded service quality, and AT&T (NYSE: T  ) , which possesses Apple's (Nasdaq: AAPL  ) mighty iPhone, has leeched customers from Sprint's networks. Although the company did put more than $1 billion of free cash flow in the bank in the third quarter, it reported a loss on a GAAP basis and showed a reduction of more than 1.3 million subscribers.

Falling even lower on CAPS members' list is XL Capital; the $1.6 billion loss that the company reported for the third quarter goes a long way to explaining why. Hurricanes Ike and Gustav took a toll on the company's core property and casualty insurance business during the quarter. The bulk of the loss, though, came from hurricane Syncora -- a financial guarantor that was a former XL subsidiary. Though Syncora had been spun out from XL, the parent still had some exposure to Syncora's ill-fated business. Needless to say, XL has tried to move mountains to distance itself from its offspring, but it's been costly.

U.S. Steel's three-star rating straddles the line between the upper and lower end of CAPS' ratings, but the stock is off the buy list for now. This is one to watch, though, since the recently announced stimulus plan in China could help reignite demand for commodities and infrastructure-related companies.

A five-star is born!
There's no argument that NVIDIA has been clobbered during the past year's market crash, but as with many other such affected stocks out there, we have to wonder whether the sell-off has been overdone. The company's non-GAAP third-quarter profits handily beat analysts' estimates, although there was more than one side to the quarterly numbers. For now, though, the stock has held onto a favorable four-star CAPS rating, and that's no doubt helped by the $1.3 billion in cash on its balance sheet and a complete lack of debt.

But as tasty as many CAPS members might find NVIDIA, it couldn't overtake this week's top value stock: Dow Chemical. CAPS All-Star betan1, who is one of the 1,400 CAPS members bullish on Dow Chemical, kept it short and sweet with an outperform rating on the stock in late October: "Awesome company, great dividend!"

In fact, many CAPS players, including yield chaser TMFHighYield2, have picked Dow because of its dividend. And with a current payout of nearly 7%, that shouldn't be all that surprising. And although the company was affected by higher energy and feedstock costs and the two Gulf Coast hurricanes, it still managed to eke out both top- and bottom-line growth in the third quarter. Looking ahead, Dow fans are very positive about the pending acquisition of Rohm & Haas as well as the steep drop in energy prices.

Make your vote count!
Do you agree that Dow Chemical 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 other stocks that you think should be in the running. It's all free.

More CAPS-lovin' Foolishness:

Dow Chemical is a Motley Fool Income Investor pick. Sprint Nextel is a Motley Fool Inside Value recommendation. NVIDIA and Apple are Motley Fool Stock Advisor picks. Do you want to know what makes a stock appealing to our analysts? Then grab an all-access pass to any of our Foolish newsletters today, free for 30 days

Fool contributor Matt Koppenheffer is still mourning Penn State's loss. He does not own shares of any of the companies mentioned. The Fool's disclosure policy doesn't understand decaf coffee.

 


Read/Post Comments (1) | Recommend This Article (4)

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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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