5 Top-Rated Value Stocks

Are you familiar with the dynamic duo of Fama and French? No, they didn't sing "Private Eyes" -- that was Hall and Oates. And no, they didn't star in Tommy Boy -- that was Farley and Spade.

While the names Eugene Fama and Kenneth French may not come up in most dinner conversations, the two have done some of the most interesting academic research on stocks that I've read. In short, they've proposed that there's more to stock returns than volatility -- which was most academics' previous consensus. In research they conducted over various periods and across multiple geographic locations, Fama and French determined that stocks characterized as "value stocks" have consistently outperformed non-value stocks.

Today, I've rounded up five value stocks that are all trading at less than 1.5 times their tangible book value. To focus on high-quality stocks, I've cross-referenced these against ratings in our CAPS community of more than 85,000 investors.

Though the CAPS community obviously likes these stocks, I would advise against investing in any of these on the basis of this one metric alone. With that I mind, I thought I'd dig in a little further to the story at Global Gains favorite Allied Irish Banks.

The importance of research
Cheap stocks aren't always as cheap as they appear. With nearly every stock that's gotten cheap enough to show up here comes the blemishes that caused investors to let it get so cheap. Our job as investors is to make sure we understand why a stock has ended up so cheap and determine whether the risks have been overblown -- because if they have, then we could have a screaming value on our hands.

At Allied Irish, the charge may well be guilty by association. As the scope of the U.S. credit debacle continues to broaden, investors seem to be concerned that this will eventually have a significant impact nearly every major global financial institution. So far the numbers have shown a group of financial institutions like Citigroup, AIG (NYSE: AIG), and MBIA absorbing major hits, while others like Wells Fargo (NYSE: WFC), Deutsche Bank, and Allied Irish have taken relatively glancing blows so far.

When Allied Irish recently announced its fourth-quarter earnings, it revealed some damage from U.S. subprime loans, but nothing like the losses that sent some other institutions well into the red. For the full year, the bank's interest margin tightened, but it managed to increase operating earnings 18% and post a 22% return on equity -- not a bad show, given the current environment.

Though you can find a few Allied Irish bears on CAPS, the vast majority are bullish on this bank. CAPS All-Star money4eds recently chimed in:

Seems like these days anything around banking is dead end. [Allied Irish] seems to have side stepped the whole subprime mess. Most banks ran out for more capital investment, I can't find any indication they tried to get cash. I think they are beaten down with the industry. Their ROE is above 20% and current share price is $10 above book value. I see limited down side and a huge upside when bank stocks return.

So what do you think? Are these stocks values, or value traps? Log onto CAPS and let the rest of the 85,000 member community know what you think.

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