Five Great Company Stocks Trading Under Book Value
Jon C. Ogg
Investors are seeing yet again that stocks no longer just head straight up. That being said, interest rates have risen handily, the S&P 500 and DJIA are still close to all-time highs, and valuations in many sectors and large stocks are high again. 24/7 Wall St. wanted to go looking for deep value stocks, with the focus being on companies that are well-known and that actually are trading under their perceived book values, and maybe even under their tangible book values. This is where value investing comes into play when the broader stock market is trading so close to all-time highs.
The first thing that any investor should consider is that for a stock to be cheap, there is generally a reason. Either something is wrong with a company, or perhaps it is in a challenged industry. Sometimes factors such as geopolitics or regulatory risks are an issue.
Many stocks trade under a stated book value, where the total assets minus all of its liabilities are worth more than the company's market capitalization. Where things get tricky is in the intangible assets: quality of receivables, asset quality, cash flow and many other issues.
We wanted to avoid the traditional banking stocks, where so many book values are all over the place. While beaten up companies were not disqualified, they had to be already in the midst of a turnaround. We avoided companies that will only lose money for years and years ahead.
Size matters, and a base value of $500 million was mandatory in the stock market capitalization, although it appears as though in this first screen that all these companies are worth well over $1 billion. We also focused on stocks in different industries and sectors in this first screen of August to give some diversification opportunities, and this is a subject we plan to cover in the days ahead.
The first list of 24/7 Wall St. stocks under book value for the month of August are Apache Corp. (APA), Fresh Del Monte Produce Inc. (FDP), Genworth Financial Inc. (GNW), Ingram Micro Inc. (IM) and JetBlue Airways Corp. (JBLU). We generally have focused on net asset values and tangible book values, as well as forward price-to-earnings multiples, share price performance, analyst expectations via the Thomson Reuters consensus price target and more.
Please keep in mind with any value screens that there is no attempt to preempt earnings releases, company conference calls, industry-moving events and the like. Many other discounts to book value exist, but we have screened out those with serious balance sheet issues and those that we have not followed through time. Stay tuned for more value screens from 24/7 Wall St. this month.
Apache Corp. (APA) currently is on this under book value screen only because of the woes and exposure in Northern Africa, with direct Egypt exposure. The oil and gas outfit's stock has slid handily with the turmoil in Egypt, and that means that of course risks can continue ahead if violence and uncertainty continue. We also have to warn that asset write-downs are possible as a result. Apache's $63.3 billion in assets include $55.8 billion in property, plant and equipment and includes less than $1.4 billion in goodwill. Its book value is $32.7 billion and its tangible book value is $31.3 billion, versus a market cap of $29.3 billion. Apache also pays a 1.0% dividend yield. Trading at $75.37 on last look, its 52-week range is $67.91 to $94.87, and the Thomson Reuters consensus analyst price target is up at $98.39. Again there are risks that numbers will come down due to geopolitical risks, but shares were as high as $83 as recently as August 13.
Fresh Del Monte Produce Inc. (FDP) is a company you will recognize very easily, unless you have to take a seeing-eye dog with you to the grocery stores. The canned and packaged foods maker was a bit surprising to see under book value. Its total value of $1.82 billion is bolstered by about $400 million worth of goodwill on the assets, so its tangible book value of just over $1.4 billion does not quite give it a discount to tangible book value. That being said, we figure that the company has some value in its names, trademarks, relationships and other issues that make up intangibles. This stock has done very little over much of the past decade, partly from private-label foods at grocery stores, and we would suspect partly from organic and natural food trends. This food company recently traded at just under $29, its 52-week range is $23.60 to $29.84, and the Thomson Reuters consensus price target from analysts is $33.25. It even pays a 1.7% dividend.
Genworth Financial Inc. (GNW) was last trading at 0.4 times its book value, with a market cap of just over $5.9 billion. This insurance and financial services player has recovered from the recession due to mortgage insurance operations. It has a relatively new team in place, and it now is running at profitability and expected to remain there. We want to be clear that there are still risks in legacy assets that have turned into legacy liabilities, but Wall Street investors have given the all-clear signal, even though net sales have not recovered. Genworth's net tangible assets are just under $15 billion. If the economy keeps improving, many of the old legacy issues will continue to slide off the books as management works to keep distancing its assets and investors from the past. Shares have pulled back close to $12 from a 52-week high of $13.79, but they are up more than 100% from the lows as well. The consensus price target is $13.36, and the forward earnings multiple is about 11 for 2013 and only about 8.4 for 2014.
Ingram Micro Inc. (IM) is the world's largest wholesale technology distributor that gets the products you and your business want moved and distributed all over the planet. If it is a big electronics, technology or PC player, Ingram probably distributes their products. There is no dividend, but it is still growing and it trades at only 10.3 times expected 2013 earnings and 9.4 times expected 2014 earnings. The $3.57 billion market cap is just under a stated equity value of $3.68 billion, but above a net tangible value of $2.9 billion. Because of its history, and with the world's technology goods having to get to you somehow, we are not disqualifying this sector leader's near $800 million in goodwill and intangibles. The analysts are not reacting as fast as the investors have chased it up, which is why the consensus analyst target from Thomson Reuters is still down at $21.50 against a $23.35 share price. Its 52-week range is $14.77 to $23.63. We were reluctant to point this one out since shares have risen so much, but its stock has been breaking out to pre-2000 highs. Rival Tech Data Corp. (TECD) could have made the same screen, but Ingram Micro is about 75% larger in market cap and about 50% larger in sales.
JetBlue Airways Corp. (JBLU) is an airline that has had ups and downs with customer service issues, but it is a very price competitive airline that flies to and from the Northeast. It is also expanding internationally to the Caribbean and Latin America. If the airlines are going to consolidate, this would be a very attractive assets to one of the airlines that wants to grab a bunch of new routes. Shares trade around $6.25, against a 52-week trading range of $4.76 to $7.28, and the Thomson Reuters consensus analyst price target is $7.55. Its market cap is $1.76 billion, its book value even after almost $2.2 billion in long-term debt is more than $1.9 billion, and it carries no intangible assets on the balance sheet worth noting. While it trades at a sector premium to current earnings, many carriers trade either above book value or they are buried with debt. JetBlue trades at about 10 times expected 2014 earnings.
