If you think finding true value in the stock market is a simple process, then have I got a bridge to sell you.
The truth is that, while the market isn’t as efficient as some university professors may want to tell you, it generally does 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 you're putting a true value stock in your portfolio.
Fortunately for us, in the search for stock market values, we have the 110,000-plus members of The Motley Fool's CAPS community voting on which stocks are beauties 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 typically used by value investors.
|
Company |
Book Value Multiple |
1-Year Stock Performance |
CAPS Rating (out of 5) |
|---|---|---|---|
|
Merrill Lynch |
1.6 |
(62%) |
* |
|
Crocs |
1.7 |
(81%) |
** |
|
Archer-Daniels-Midland |
1.7 |
3% |
**** |
|
JPMorgan |
1.8 |
(26%) |
** |
|
Aluminum Corp. of China |
1.9 |
(31%) |
***** |
Sources: Capital IQ, Yahoo! Finance, and CAPS as of June 27.
As you can see, though these stocks all carry multiples that suggest they’d be good values, the CAPS community obviously doesn’t think they’re all worthy of your investment dollars.
Not quite walking the walk on the stock runway
John Thain may be doing all he can to turn Merrill Lynch back around, but the investors on CAPS don't seem to be changing their minds on the company quite yet. And that may be for good reason -- fellow investment bank Lehman Brothers
As CAPS All-Star Jeffreyw puts it: "[Merrill Lynch is] another bunch of smart folks, but still losing in the investment and hedging arena."
If you're looking for a large-cap brokerage firm, the CAPS community has a somewhat better view on JPMorgan, but the consensus opinion still puts the stock in the bottom half of the CAPS universe -- along with nearly all of the financial services companies.
And as for Crocs, well, CAPS players have been negative on the king of Croslite for a long time, and it's just within the past year that the stock's performance has caught up to that sentiment. Though the stock now trades at around five times expected 2008 earnings, the CAPS bears aren't ready to step away quite yet.
Down to the final two
Booming agriculture and the promise of ethanol as a replacement for black gold have both been a boon for Archer-Daniels-Midland, and the company has maintained a strong four-star rating on CAPS. However, the recent floods in the Midwest and a skeptical undercurrent about the feasibility of ethanol kept ADM out of the top spot in this week's lineup.
Grabbing the title of America's Next Top Value Stock this week is Aluminum Corp. of China (a.k.a. Chalco). That's right, yet again we have a foreign stock taking the top honors. And can you blame CAPS players for liking this one? After iron, aluminum is the most widely used metal worldwide, and global growth has been firing up demand over the past few years.
Chalco's stock has taken a hit recently. Investors have reacted poorly to the company's announcement that first-half earnings would fall well short of last year’s level, as well as China's decision to raise energy costs. Despite this, the company still sits in a pretty comfy spot; it's located in a country that's growing like a weed and has a huge appetite for products like aluminum.
On CAPS, All-Star ennui kept his bull pitch short and sweet, asserting: "Does China need aluminum? You bet! And who is best positioned to supply it? [Chalco]! Earnings hammered by the floods earlier in the year. This is a great buying opportunity."
Make your vote count!
Do you agree that America's next top value stock may not be an American company? 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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