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.

Eugene Fama and Kenneth French have done some truly compelling academic research on stocks. They propose that there's more to stock returns than volatility -- which had been the prevailing wisdom from most academics. In research they conducted in different times and places, Fama and French conclude that stocks characterized as "value stocks" have consistently outperformed non-value stocks.

Today, I've rounded up five value stocks that are 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 Motley Fool CAPS community of more than 100,000 investors.

Company

Tangible Book
Value Multiple

1-Year Change

CAPS Rating
(5 max)

Montpelier Re (NYSE: MRH)

1.0

(10%)

*****

Sierra Pacific Resources (NYSE: SRP)

1.0

(24%)

*****

CapitalSource (NYSE: CSE)

1.1

(35%)

*****

FormFactor (Nasdaq: FORM)

1.3

(54%)

*****

Honda Motor (NYSE: HMC)

1.2

(2%)

****

Data from CAPS, Yahoo! Finance, and Capital IQ as of May 2.

Although 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 in mind, I thought I'd dig in a little further to the story at Hidden Gems pick Montpelier Re.

It's gonna be a bumpy ride!
The hoped-for performance from most companies looks a lot like the upward slope of a hikeable mountain -- always up and to the right with not too much in the way of peaks or cliffs. That playbook needs to be taken out back and shot when it comes to insurance, particularly the flavor of property and casualty catastrophe reinsurance that Montpelier Re engages in.

To start, the insurance industry is cyclical. When the premiums that insurance companies can charge are earning good returns -- which can be judged by low combined ratios -- then more capital floods the market and pushes pricing down. This leads to a downswing in the cycle and a drop in industrywide underwriting profitability.

Berkshire Hathaway's (NYSE: BRK-A) (NYSE: BRK-B) Warren Buffett has been very vocal recently, saying that this is the direction that the industry is currently headed. When it comes to reinsuring catastrophes, there's the added variable that disasters tend to come at infrequent intervals, but bring huge losses when they do.

And because insurers get a good chunk of their earnings from investing their float, the turbulent capital markets of late have made it even more challenging to report pleasing results to investors.

Lower pricing, greater loss experience, and investment losses all whacked Montpelier in its most recent quarter and drove its $0.76 in earnings per share from the first quarter of last year to $0.00 this year. Ouch. The bad news for Montpelier is that industry pricing will probably take some time to turn back around, so underwriting profitability will continue to suffer. However, loss experience and investment performance aren't tied to premium pricing. A bounce-back in either or both could make the coming quarters look significantly better.

The CAPS community has come out overwhelmingly in favor of Montpelier, with nearly 2,700 outperform ratings overshadowing just 95 underperform ratings. Many players jumped on Montpelier shortly after the stock plunged from the losses of the devastating 2005 hurricane season.

Earlier this year, though, Cheekybloke decided that the stock was a good bet, noting:

Uncertainty is creating a stock that is priced so low it either is severely undervalued or has issues / potential losses which I and other investors are not privy to. I would hazard the downside risk is much less than upside potential at this price.

So what do you think? Are these stocks values, or value traps? Log onto CAPS and let the rest of the 100,000 member community know what you think.

More CAPS Foolishness:

Montpelier Re and FormFactor are Motley Fool Hidden Gems recommendations, and Montpelier is also a Stock Advisor selection. CapitalSource is an Income Investor selection. Berkshire is both a Stock Advisor and an Inside Value pick. The Fool owns shares of CapitalSource and Berkshire. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Matt Koppenheffer does not own shares of any companies mentioned. The Fool's disclosure policy wouldn't know a value trap from a hole in the wall, but then again, the disclosure policy is just an inanimate collection of words.