5 Book Value Bargains

From strapping on a seat belt to exercising regularly to arriving at the airport two hours before the flight takes off, there's nothing like being on the safe side for one's own piece of mind.

In the stock market, the safest way to maneuver isn't through blind diversification, but by purchasing investments at a large discount to their intrinsic value -- thus earning a comfy-cozy "margin of safety" (which Warren Buffett calls the three most important words of investing).

Keep your head down
When you make a conscious effort to limit your downside, market-trouncing returns usually take care of themselves. As long as you stay in the game and don't get wiped out, you'll always have the chance to make huge profits.

Fools can achieve downside protection in lots of different ways, but one of the simplest is to look for unloved stocks trading close to their tangible book values. If the problems associated with the company are temporary, buying a stock below, or near, the value of its hard assets -- like cash, inventory, property, and equipment -- is one of the classic ways to defend against portfolio disaster.

For more on the dos and don'ts of using tangible book value, click here.      

Book 'em, Fools
In this column, we'll screen for interesting cyclical, financial, and capital-intensive stocks trading close to their tangible book values. We'll also check in with our Motley Fool CAPS community -- which rates stocks based on the collective wisdom of more than 50,000 investors -- to see what they think.

So, without further ado:

Remember, Fools, these stocks are not well-formulated recommendations. The caveat to analyzing cheap assets is that they're almost always cheap for a (scary) reason. It'll take some due diligence on your part to separate the wheat from the chaff, but if you do it correctly, the rewards are certainly worth it.    

Reinsured insurance?
This week, the only five-star stock on our list is Aspen Insurance, so it might be a good place to start. All of the 17 All-Stars who've rated Aspen are bullish, including professional analyst Bank of America Securities.

In 2005, Aspen saw more than a third of its equity get blown away with the hurricanes, but it has since raised a ton of cash and diversified its risk exposure, and it sits in a healthy financial position today. In addition, Aspen's bottom line and combined ratio have continued to show marked improvement over the last several quarters.

Of course, Aspen writes catastrophe and terrorism insurance, so there are still major risks involved. But with the stock selling at a discount to peers like Ace (NYSE:ACE), XL Capital (NYSE:XL), and Endurance Specialty, the rewards may outweigh those risks at the moment. Here are a couple of CAPS players with an opinion on Aspen:

• dequeant likes that Aspen's fundamentals are being coupled with an attractive valuation and says, "It's profitable, growing, below book value, low P/E compared to industry, low PEG compared to industry, and has very little debt."
• CAPS All-Star bsharvy, meanwhile, also likes Aspen, but lets us know to stay on our toes: "Valuations, cash, past growth, future earnings estimates ... all excellent. But, catastrophe can strike at any time."

Discount furniture
With a rating of four stars in CAPS, Natuzzi looks like another interesting asset play. Currently, 35 CAPS players have rated the Italian furniture maker, with only one dissenting bear in the bunch. Although just one professional analyst covers the stock, two sharp Fools, Rich Smith and Seth Jayson, have been following Natuzzi for quite some time now. Judging from the company's fundamentals and intriguing valuation, it's not hard to see why.

Despite being negatively affected by the U.S. housing slump, Natuzzi still managed to generate $62.5 million in free cash flow in 2006, while the balance sheet remained solid. For Fools willing to stay patient throughout fiscal 2007 -- which management expects to be a struggle -- today's levels might be a shrewd place to jump in (in CAPS at least). These two players sit comfortably on their pick:

• Junkyardhawg1985 -- who's become a CAPS All-Star by predominantly using a book-value approach -- gives us a succinct breakdown of what he likes: "Plenty of cash, good growth, sells below net tangible assets."
• Lastly, fellow Fool and CAPS All-Star TMFDitty speaks specifically to Natuzzi's discounted stock: "[Currently] selling for just 70% of tangible book value (i.e., you could theoretically buy the company, liquidate its assets, and pocket a 43% profit). The housing downturn could make this ultra-cheap stock cheaper still, but long-term, I think it's a winner."

Book a bet of your own
Fools should always pay close attention to what they're paying for. Far too often, investors pay up for heady growth prospects and harebrained schemes when there are plenty of real values to be had in the form of hard, balance-sheet assets.

A great way to jump-start your search is by logging on to Motley Fool CAPS -- home to more than 4,400 rated stocks. You can always scour the stock universe on your own, but in CAPS, thousands of Fools combine their wisdom to help ferret out the weeds. So, join now to find those no-brainers before it's too late. It's absolutely free.  

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool has a disclosure policy.