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 want to tell you, 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 165,000-plus members of The Motley Fool's CAPS community voting on which stocks are true stars, and which are just 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

Flagstar Bancorp (NYSE: FBC  )

0.4

(71.5%)

*

National Bank of Greece (NYSE: NBG  )

0.7

(61.7%)

****

American Capital Agency (Nasdaq: AGNC  )

1.2

10.7%

***

TFS Financial (Nasdaq: TFSL  )

1.6

(20.7%)

*

Energy Transfer Partners (NYSE: ETP  )

1.9

8.9%

*****

Source: Yahoo! Finance and CAPS as of Aug. 24.

As you can see, though these stocks all carry value-like multiples, the CAPS community obviously doesn't think that all are worthy of your investment dollars.

No twinkle in these stars
While we've (hopefully!) left the very worst of the financial crisis in the past, don't take that to mean that you can start grabbing bank stocks willy-nilly. Superinvestor Peter Lynch may have done well buying banks in the wake of the savings and loan crisis, but CAPS members are frantically waving red flags about many banks in the wake of the more recent mess -- and Flagstar Bancorp and TFS Financial definitely fall into the group.

Both stocks carry a rock-bottom one-star rating. Both have taken it on the chin as the green-around-the-gills economy has muddled along. Flagstar has clearly had a much worse go of it than TFS, but the message from CAPS members is clear: Steer clear of both!

American Capital Agency picks up two extra stars compared to Flagstar and TFS, but still only carries a middling three-star rating. The company is basically an investment fund that levers itself up on low-cost leverage, buys agency-backed mortgage paper, and then collects the spread between its borrowings and investments.

The company is managed and advised by a subsidiary of American Capital (Nasdaq: ACAS  ) -- a four-star CAPS pick -- and its stock current carries a dividend yield greater than 20%. So why the low rating? For one thing, the company doesn't have much of a track record, since it's only been around since mid-2008. And the company's business model is a dead ringer for Annaly Capital's (NYSE: NLY  ) , a stock that CAPS members have also given a middling three-star rating.

A five-star is born!
Now that we've left the riffraff behind, we can move on to a stock that CAPS members think is worthwhile: National Bank of Greece.

The reasons to not like National Bank of Greece's stock are all too obvious. Greece was splattered all over the headlines earlier this year, as the country grappled with a crippling debt problem. National Bank of Greece sits on a significant amount of Greek sovereign debt -- paper that would plunge in value if Greece defaulted on any of its obligations. Meanwhile, the austerity measures implemented by Greece to deal with its crisis are expected by many to smack an already-struggling economy squarely in the chin.

But as my fellow Fool and Motley Fool Global Gains advisor Tim Hanson outlined recently, when picking National Bank of Greece for the "11 O'Clock Stocks" series, many investors may have become overly pessimistic. Thanks to backing from the European Union, Tim doesn't believe that the risk of a Greek default is nearly as high as investors seem to presume. In addition, he thinks that National Bank of Greece's successful, growing presence in up-and-coming Turkey gets overlooked. And to top that all off, the stock carries a tantalizingly low valuation.

Tim is far from the only Fool bullish on National Bank of Greece. Nearly 1,250 CAPS members have also given the stock a thumbs-up. However, as much as CAPS members seem to like that stock, it couldn't quite top this week's top value stock, Energy Transfer Partners.

The company is one of the largest master limited partnerships in the U.S., owning a collection of natural gas pipelines. Essentially, it's is a toll road, collecting fees for the product that it pushes through its pipes. Energy Transfer Partners produces very healthy cash flow and kicks a lot of that back out to investors. Currently, the stock's yield is an eye-catching 7.7%.

On CAPS, the stock has received 707 outperform ratings against just 13 underperforms. Members have highlighted the potential for natural gas to be a bigger piece of the U.S.'s energy picture in the future, the stability of the company, and, of course, the hefty dividend.

Make your vote count!
Do you agree that Energy Transfer Partners 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.

There are a lot of myths when it comes to the stock market. Could this be the biggest of the past decade?

The Fool owns shares of Annaly Capital Management and National Bank of Greece SA. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool's disclosure policy -- which does nothing but monitor disclosures -- knows that boring can be beautiful.


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  • Report this Comment On August 26, 2010, at 3:17 PM, ZDBAR wrote:

    Give your articles a once over. Spell-check does not catch errors in grammar.

    To professionalism!

  • Report this Comment On August 26, 2010, at 5:01 PM, TMFKopp wrote:

    @ZDBAR

    Rest assured that a lot of time and effort go into my articles, however, sometimes mistakes can slip by. If there's a mistake in the article that makes it unreadable to you or makes any of the major points difficult to understand, please let me know what it is so that I can fix it for the benefit of other readers.

    Otherwise, since you don't note where the problem is, I'm not sure what the point of your comment is.

    Thanks for reading-

    Matt

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