Are you familiar with the dynamic duo of Fama and French? No, they didn't eat from the tree of knowledge of good and evil -- that was Adam and Eve. And they didn't defeat Mr. Freeze -- that was Batman and Robin.
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 two times their book value. (You can run the same screen on the CAPS screener.) To focus on high-quality stocks, I've cross-referenced these against ratings in our CAPS community of more than 140,000 investors.
|
Company
|
Book Value Multiple
|
1-Year Change
|
CAPS Rating
(out of 5)
|
|
Coeur d'Alene Mines (NYSE: CDE )
|
0.6
|
(16%)
|
****
|
|
Valero Energy (NYSE: VLO )
|
0.7
|
(46%)
|
*****
|
|
Netgear (Nasdaq: NTGR )
|
1.6
|
2%
|
*****
|
|
Apache (NYSE: APA )
|
1.9
|
(24%)
|
****
|
|
Nucor (NYSE: NUE )
|
1.9
|
(13%)
|
****
|
Data from CAPS, Capital IQ (a division of Standard & Poor's), and Yahoo! Finance as of Aug. 28.
While these aren't formal recommendations, the CAPS community thinks they are good choices when it comes to value stocks. With that I mind, I thought I'd dig in a little further on Motley Fool Stock Advisor favorite Netgear.
Where is the value?
Selling personal and small-business networking equipment isn't the novel business that it once was, and the market doesn't have quite the same growth prospects that it once did. Competing in this market means the $600 million Netgear has to go up against tech industry giants like Cisco (Nasdaq: CSCO ) and 3Com (Nasdaq: COMS ) .
Netgear, however, has established itself as a trusted brand and competes well with its Goliath-sized competitors. The company is also finding niches within the networking industry -- such as home media and gaming -- where there's more growth to be had.
And while the company's most recent quarter was pretty ugly (it posted a $3.3 million loss), the $224 million in cash on its balance sheet along with its lack of debt should give investors confidence that the company will easily survive to see the other side of this recession.
But will it beat the market?
The meager 2% gain that Netgear's stock has posted over the past 12 months was easily enough to best the 21% loss that the S&P 500 has experienced over the same period.
Members of the CAPS community think the outperformance will continue and have slapped a perfect five-star rating on Netgear's stock. Overall 2,401 CAPS members have rated Netgear an outperformer, while just 77 naysayers have put their thumbs down on the stock's prospects.
CAPS All-Star webbmark1 has been a believer in Netgear's stock since early this year, and thinks Netgear will succeed thanks to the easy-to-use nature of its products:
NetGear makes "home friendly" network hardware. If you don't have data network stuff in your home now you probably will in the next couple of years - don't you want to be able to surf the net on that new HDTV in the livingroom?
You'll probably end up being the network administrator for your family as well.
Now how good does "home friendly" sound?
So what do you think? Are the stocks in this group values, or value traps? Log onto CAPS and let the 140,000-member community know what you think.
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