Though value investors have been some of the most successful investors out there, finding good stocks at bargain prices is far from easy. Though markets aren't as efficient as some university professors may tell you, they generally do a pretty good job pricing stocks. So while 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 170,000-plus members of The Motley Fool's CAPS community voting on which stocks are true stars and which are just posers. To gather ideas for further research, I've dug up a handful of companies valued at less than twice their book value -- a measure often used by value investors.
Book Value Multiple
52-Week Stock Performance
Advanced Battery Technologies
Fifth Street Finance
Source: Yahoo! Finance and CAPS as of July 8.
As you can see from their star ratings, although these stocks all carry value-like multiples, the CAPS community doesn’t think all are worthy of your investment dollars.
No twinkle in these stars
It's been a rough ride for Chinese stocks lately, as short-sellers have the upper hand when it comes to steering investor sentiment. Not only is that obvious in the terrible stock performance for Advanced Battery and Yongye, but the CAPS ratings for both stocks have also suffered. Earlier this year, Yongye was sitting at the top of the CAPS universe with a perfect five-star rating, but community members have slowly stepped away from the stock as bears have continued their assault. Advanced Battery hasn't been a particularly well-loved stock in the past, but it did have an extra star earlier this year.
Are there reasons for investors to go against these lackluster CAPS ratings and jump in on Yongye and Advanced Battery? Yongye fired back in late May with an investment from Morgan Stanley that seemed aimed at giving the company more credibility. However, I remain deeply skeptical of Chinese small caps in general, so I'm mostly steering clear of the entire group.
For my money, IBM
While Xerox may not be in exactly the same situation that IBM was, the big splash it made in 2009 by buying Affiliated Computer Services shows that it has its sights set on broadening its business. As of right now, though, CAPS members aren't sold on the new Xerox, and the three-star rating suggests that the sidelines may be the best place to be when it comes to the stock right now.
A five-star is born!
Now that we've left the riffraff behind, we can move on to a stock that CAPS members think is worthwhile: Fifth Street Finance.
Dividends are back in vogue in 2011. With that in mind, it shouldn’t be that surprising that investors would get excited about Fifth Street Finance; its stock currently yields close to 11%.
Fifth Street earns its keep by lending money to small and mid-sized companies, typically at the same time that a private equity firm is investing. Fifth Street rakes in the interest that it receives from its debt investments and doles that back out to shareholders. The company also has a small amount of its money in equity investments that it hopes will accrue capital gains over time.
While that dividend yield may look tempting, on the downside, the company doesn't have much of a track record, since it was just started in 2007. And the track record so far hasn't been stellar, as Fifth Street's book value per share has fallen in two of the past three years.
While CAPS members thought highly enough of Fifth Street to give it four stars, it couldn't quite top this week's top pick, Westell Technologies.
Covering Westell's year-end numbers, my fellow Fool Anders Bylund said Westell is "not a stock for beginners right now." Why would he say such a thing? Well, just like David Bowie in '72, Westell is going through changes. Between a big tax benefit in the fourth quarter and the lack of comparability following the sale of its customer networking solutions business to Netgear
That said, Anders also noted that it may be a good thing for the company over the longer term that Westell's move puts its focus squarely on the service-provide side of things. That positive sentiment is underlined by both the stock's performance over the past year as well its perfect five-star CAPS rating.
Make your vote count!
Do you agree that Westell 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.