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 want to tell you, but they generally do a pretty good job pricing stocks. So while there are good deals out there, you'll have to break a bit of a mental sweat to make sure that you're investing in the stock equivalent of Brad Pitt, rather than Kato Kaelin.
Fortunately for our search for stock market values, we can call upon The Motley Fool's CAPS community. Its 170,000-plus members vote 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
(out of 5)
|
|
Capstead Mortgage (NYSE: CMO )
|
0.9
|
(22.5%)
|
**
|
|
Penn West Energy Trust (NYSE: PWE )
|
1.1
|
29.3%
|
*****
|
|
Hudson City Bancorp (Nasdaq: HCBK )
|
1.2
|
(7.3%)
|
***
|
|
East West Bancorp (Nasdaq: EWBC )
|
1.2
|
87.5%
|
*
|
|
Progress Energy (NYSE: PGN )
|
1.3
|
13.4%
|
****
|
Source: Yahoo! Finance and CAPS as of Sept. 29.
As you can see by their star ratings, 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
The discussion of the banking industry tends to focus on too-big-to-fail (or are they?) giants like Bank of America and Citigroup (NYSE: C ) . These banks have broad national and international exposure, and their investment banking and trading units have helped them through recent tough times. (That boost may not last.)
However, those banks aren't really representative of the vast number of smaller regional and commercial banking institutions scattered across the U.S.
I've expressed concerns about both East West Bancorp and Hudson City Bancorp in the past, because of the level of the banks' respective nonperforming loan coverage ratios. It would seem that CAPS members are similarly squeamish about both names. That said, East West's troubles owe largely to FDIC-assisted acquisitions, which some investors believe could work out in the bank's favor in the long run.
I do, however, think that investors willing to turn over a lot of rocks can find good opportunities right now in the reviled banking sector. My fellow Fool Anand Chokkavelu has been doing just that for some time now.
Like Annaly Capital Management (NYSE: NLY ) , which the Fool owns shares of, Capstead Mortgage is a REIT that invests in agency-backed mortgage securities, and relies on pocketing the difference between the income from those investments and the cost of its debt. But the business model of Annaly, Capstead, and others doesn't sit particularly well with me, and CAPS members haven't exactly been bullish, either. Making matters worse, investors just recently had to stomach a smaller dividend from Capstead.
Of course, even after the dividend drop, Capstead still yields 9.3%. I've argued that stocks with hefty yields have a tendency to outperform the rest of the market.
A five-star is born!
Now that we've left the riffraff behind, we can move on to a stock that CAPS members consider worthwhile: Progress Energy.
Progress may not have quite as high of a payout as Capstead, but at 5.6%, its dividend is certainly nothing to sneeze at. And since it's primarily a regulated energy company, Progress can promise a lot more stability in its payout. In fact, Progress has raised its dividend every year over the past 20 years.
Want wild excitement and volatility? Progress probably isn't for you. But if you're looking for a stable investment that will put a growing stream of cold, hard cash in your pocket, then Progress may be just what the doctor ordered.
But while Progress' four-star rating makes it a worthy consideration for investors, it couldn't quite top this week's top value stock, Penn West Energy.
My fellow Fool Dan Caplinger recently concluded that Penn West likely falls short of perfection. For my part, I wonder whether its 5.3% dividend makes it a real standout in this market, particularly considering the uncertainty surrounding how upcoming Canadian tax changes will affect CANROYs (that is, Canadian royalty trusts) like Penn West.
Still, CAPS members have stuck with this energy stock, anticipating favorable action in the oil market. Earlier this year, CAPS member nwtracker joined the crowd with a thumbs-up and some bullish sentiment:
This is an energy dividend play. A large portion of the "foreign Oil" the US uses is from Canada. Plus the Chinese joint venture will strengthen the capital used in development of already owned leases. I love the monthly payments for cash-flow.
Make your vote count!
Do you agree that Penn West Energy 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.
Are we wasting our time looking for the best stocks? Could stock picking really be dead?
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