Though value investors have been some of the most successful investors out there, finding good stocks at bargain prices is far from easy. Markets aren't as efficient as some university professors may tell you, but they generally do a pretty good job 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 Brad Pitt, not Kato Kaelin.
Fortunately for our search for stock market values, we have the 140,000 members of The Motley Fool's CAPS community voting on which stocks are true stars, and which are just posers. To gather ideas, I've dug up companies valued at less than twice their book value -- a measure often used by value investors. Below is a selection from the companies that fall into this category; you can run the same screen that I did on the CAPS screener:
|
Company |
Book Value Multiple |
1-Year |
CAPS Rating
|
|---|---|---|---|
|
Southwest Airlines |
1.2 |
(44.9%) |
*** |
|
Leucadia National |
1.6 |
(44.2%) |
***** |
|
US Bancorp |
1.8 |
(32.2%) |
**** |
|
SunPower |
1.9 |
(69.4%) |
*** |
|
Motorola |
1.9 |
(15.4%) |
** |
Source: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and CAPS as of Sept. 4.
As you can see, though these stocks all carry value-like multiples, the CAPS community doesn't think that all of them deserve your investment dollars.
No twinkle in these stars
Even a quick look at Motorola's financials would give you a pretty good idea why its stock has gotten such a low rating from the CAPS community. Revenue declined 30% between 2006 and 2008 and, over the past 12 months, the company's operating profit was less than twice what it was required to pay out in interest.
Motorola may have once had a big hit with its RAZR phone, but with competitors like Apple
If you mentioned to Warren Buffett that you were thinking about investing in Southwest Airlines, he might suggest that you call the "aircoholics anonymous" hotline. Though Berkshire Hathaway does own NetJets, the airline business has been none to kind to the world's second-richest man. CAPS members don't have a terribly high opinion of Southwest, but they have put it head and shoulders above competitors like US Airways and Delta.
This Fool would love to see the day when solar power is truly competitive and we can start weaning ourselves off of carbon-based fuels. However, that day isn't here yet, and the gaggle of companies competing in the solar space are fighting tooth and nail for the lead position. Based on the opinions of CAPS members, there are quite a few solar companies with better prospects than SunPower.
A five-star is born!
You may think that banking is down and out. And for the most part the CAPS community would agree with you. However, there are a handful of banks, including US Bancorp, in which our community has shown confidence. Why? Well, as far as US Bancorp is concerned, many see it as a bastion of conservative lending, with far less garbage on its books than competitors like Citigroup.
Although US Bancorp fought hard, its four-star rating just isn't enough to win it the top value stock crown today. That honor goes to Leucadia National.
While Leucadia doesn't make any readily identifiable product, it's well known among many investors as a diversified holding company staffed by highly skilled investors. In fact, it's not unlike Berkshire Hathaway, minus the massive insurance operations -- and the Buffett.
Overall, Leucadia has racked up nearly 1,100 outperform ratings on CAPS, versus just 27 underperform ratings, and carries a perfect five-star rating. CAPS member ACMIP -- who is ranked in the top 1% of all members -- gave Leucadia a thumbs-up earlier this year and said:
In typical fashion, Mr. Market has abandoned LUK (i.e. Joe and Ian) during a period of weak investment results, ignoring LUK's spectacular 20[-year] track record and likely future outperformance. The markets short sighted focus on recent losses is providing patient investors with a remarkable opportunity.
Priced slightly above depressed tangible book value (i.e. liquidation value), investors can have these "super investors" guide their capital through today's treacherous market environment, and even better yet, they won't have to pay up for the privilege. Outperform.
Make your vote count!
I've already given Leucadia an outperform rating in my CAPS portfolio, but what do you think? Do you agree that Leucadia 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 the other stocks that you think should be in the running.
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