5 Top-Rated Value Stocks

Are you familiar with the dynamic duo of Fama and French? No, they didn't star in "Black Sheep" -- that was Farley and Spade. And they didn't perform "Who's on First?" -- that was Abbott and Costello.

While the names Eugene Fama and Kenneth French may not come up in most dinner conversations, the two have done some very interesting academic research on stocks. 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 nonvalue stocks.

Today, I've rounded up five value stocks that are all trading at less than two times their book value (you can run the same screen on the CAPS screener). To focus on high-quality stocks, I've cross-referenced the screen results against ratings in our CAPS community of more than 130,000 investors.

Data from CAPS; Capital IQ, a division of Standard & Poor's; and Yahoo! Finance as of April 24.

While these aren't formal recommendations, the CAPS community thinks that these are some good choices when it comes to value stocks. With that I mind, I thought I'd dig in a little further on five-star Royal Bank of Canada.

Where is the value?
Like any other bank, RBC's core value is its ability to gather low-interest deposits and turn around and lend that money successfully at higher rates. Of course, "successfully" is the key word there. As banks all over the world have shown, when you're not diligent about the loans you make, you could suddenly face a tsunami of writedowns.

To date, the results coming from RBC suggest that its lending practices were far more conservative than many of its competitors in North America -- or around the globe for that matter. In addition, the bank has captive insurance and capital markets units, which have held up well during the financial market turmoil and contributed to the bank's overall strength.

What's even better for RBC is that if boring, conservative lending practices made an institution a lesser choice among the banking stocks a few years ago, today it makes it a champ. As of earlier this month, RBC was the fifth-largest North American bank based on market cap, just slightly behind Bank of America (NYSE:BAC) and fair bit ahead of other U.S. majors like US Bancorp (NYSE:USB). Globally, it clocks in as the 13th-largest bank, a position that will help it attract more customers in all of its business lines.

But will it beat the market?
As fellow Fool Dave Mock reported last week, RBC just recently jumped up from four-star to five-star status on CAPS. He cited the bank's conservative approach to its business and noted that approach in Canadian banking as a whole. Dave also pointed out RBC's consistent dividend payout performance as reasons to be bullish on the stock.

Of course, for those looking to take a big home run swing in the banking sector, RBC probably doesn't look nearly as appetizing as some of the banking names that have seen their stocks marked down much more dramatically. But for those that follow Warren Buffett's No. 1 rule of investing -- never lose money -- RBC seems a much safer bet.

On CAPS, FoolishDJM gave the stock a thumbs-up earlier this year, saying:

The big five banks in Canada operate a virtual oligarchy, which make their moats deep and wide. Regulations have protected Canadian banks from the worst of the toxic loans. The Governor of the Bank of Canada projects that Canada will be best positioned developed nation in 2010 after the worst of the recession is over.

So what do you think? Are the stocks in this group values, or value traps? Log onto CAPS and let the rest of the 130,000-member community know what you think.

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