Although 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 of pricing stocks. So even though 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 that you're investing in the stock equivalent of Brad Pitt, not Kato Kaelin.
Fortunately for us, in the search for stock market values, we have the 130,000 members of The Motley Fool's CAPS community voting 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 that value investors often use. Below is a selection from the array of companies that fall into this category, but you can also run the same screen that I did on the CAPS screener.
|
Company |
Book Value Multiple |
1-Year Stock Performance |
CAPS Rating (Out of 5) |
|---|---|---|---|
|
First Marblehead |
0.2 |
(82%) |
**** |
|
Centex |
0.7 |
(70%) |
* |
|
Goldman Sachs |
0.9 |
(46%) |
*** |
|
Abercrombie & Fitch |
1.0 |
(71%) |
** |
|
XTO Energy |
1.1 |
(43%) |
***** |
Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and CAPS as of March 20.
As you can see, although these stocks carry value-like multiples, the CAPS community obviously doesn't think all of them are worthy of your investment dollars.
No twinkle in these stars
Retailers have taken a beating over the past year as consumers have lost jobs and watched their home prices and stock holdings tumble. Many CAPS members don't see this trend making a quick turnaround and are expecting the economy to continue to chip away at results from companies such as Abercrombie. Some members are also concerned that Abercrombie's clothes may not have quite the cachet that they once did.
Meanwhile, CAPS members aren't ready to give any of the homebuilders a break. The one-star Centex made the list this week, and competitors Lennar
Goldman Sachs' rating tops those of Centex and Abercrombie, but a good number of CAPS members aren't quite ready to give the investment bank the benefit of the doubt, either. it has held up relatively well, but it still has a very opaque business and a highly leveraged balance sheet -- both things that investors are avoiding like the plague in this environment.
A five-star is born!
First Marblehead was one of the worst stocks of 2008, but nearly 3,000 CAPS members have stuck with it. Those who have kept their thumbs raised seem to believe in the inherent value of the work that the company does with student loans. However, it's also worth noting that the stock is not currently ratable because it has fallen so far in value. Four stars or not, this Fool would tread carefully around Marblehead.
Natural-gas specialist XTO Energy, on the other hand, has had more consistent support from the CAPS community -- and plenty of it. The stock currently has more than 2,100 outperform ratings, versus just 35 underperforms. Let's look at what CAPS member wolfhounds has to say about why the stock is worth a hard look:
I'll make this short and sweet. I'm a buyer of this stock today after reading the 10-k and disregarding the market's knee jerk reaction. In case you can't get to it the gist is this. Despite dramatic falls in energy prices, XTO had substantial increase in cash flow and production while adding valuable reserves which will bode well into the future.
Generally speaking, the CAPS community has been very bullish on the energy sector, and there are some compelling reasons. It seems likely that prices may have overcorrected after last summer's spike, so there could be some gains for energy stocks as prices come back to a more reasonable level. At the same time, the world isn't going to be able to detach itself from fossil fuels overnight, and there is growing demand that needs to be met.
Make your vote count!
Do you agree that XTO 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.
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