5 Top-Rated Value Stocks

Are you familiar with the dynamic duo of Fama and French? No, they didn't star in Tommy Boy -- that was Farley and Spade. And they didn't sing "Seven Nation Army" -- that was Jack and Meg White.

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 non-value 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 these against ratings in our Motley Fool CAPS community of more than 135,000 investors.

Data from CAPS; Capital IQ, a division of Standard & Poor's; and Yahoo! Finance as of June 19.

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 Motley Fool Inside Value pick Markel.

Where is the value?
Markel may be best known to some investors because of the parallels that are drawn between it and Berkshire Hathaway (NYSE:BRK-A). While some of those parallels may be warranted, I think the comparison actually does a disservice to Markel, because it's much more than just a Berkshire copycat.

Markel is an insurance business through and through. But unlike MetLife (NYSE:MET), Progressive, or Berkshire's GEICO, Markel focuses on specialty insurance lines. Basically, this means that the company takes on nonstandard insurance risks that need to be examined and priced on an individual basis. While specialty markets tend to be smaller than standard markets like life and auto, they're less price-sensitive, and, if risks are properly managed, can be very profitable.

Like just about every insurance business, Markel boosts its income by investing the insurance premiums that it collects (the "float"). Historically, this has been a great part of the business for the company. Under the careful watch of Chief Investment Officer Tom Gayner, for the 10 years ending in 2008, Markel's portfolio returned, on average, 4.7% per year, while the S&P 500 lost value.

Not surprisingly, it's this investing success that has helped inspired the "baby Berkshire" nickname.

But will it beat the market?
Members of the CAPS community certainly haven't overlooked Markel's quality. Currently, 2,644 CAPS members have rated the stock an outperformer, versus just 61 who think it will lag the rest of the market.

CAPS member athenamike gave the stock a thumbs-up last month and had this to say:

Excellent insurance underwriting and excellent investing make Markel a great long term growth company. The insurance market is hardening and future investment returns, although bumpy in the short term, should look much better. I expect book value growth of around 10-15% per share and a future price to book of 1.5x to 2x versus current 1.2x.

So what do you think? Are the stocks in this group values, or value traps? Log onto CAPS and let the rest of the 135,000-member community know what you think.

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