Bargain Hunters Should Search for Stocks Selling for Less Than Book Value
Posted: November 10, 2015
Vodaphone and Benchmark Electronics are trading at less than book value. That’s a sign alert investors should watch for.
Book value is a company’s net worth — its assets minus its liabilities. When a stock sells for less than a company’s book value per share, it can signify the stench of trouble or the sweet scent of opportunity.
This is the 15th column I’m written since 1998 on stocks selling “below book.” The average one-year return on my Below Book recommendations has been 18.0 percent, compared to 9.7 percent for the S&P 500 over the same periods. (The figures are total returns including dividends.)
Ten of the previous 14 sets of recommendations were profitable, and nine of them beat the Standard & Poor’s 500 Index, widely used as a benchmark of the U.S. stock market.
The four stocks I recommended a year ago all beat the index. Travel Centers of America (TA) returned 35.9 percent; Formula Systems Ltd. (FORTY), 24.3 percent; America International Group (AIG), 15.2 percent; and Unum Group (UNM), 7.3 percent. The average return was 20.7 percent, while the S&P was up 5.1 percent from Nov. 11, 2014, through Nov. 6.
Bear in mind that the performance of my column picks is theoretical and doesn’t reflect actual trades, trading costs or taxes. Past performance may not predict future results. And the returns on my column selections shouldn’t be confused with my record in managing actual portfolios for clients.
And now for some fresh meat. Here are five stocks I like now that are selling for less than book value.
Vodaphone
Vodaphone Group PLC (VOD), a cellular phone giant, serves more than 400 million mobile phone customers worldwide. Though the company is based in the United Kingdom, some of its biggest markets are India, South Africa and Germany.
The company’s growth has slowed in the past few years, but there are signs of a pick-up lately, as rate wars may be abating. The stock sells for less than 10 times earnings, 0.84 times book value, and 1.34 times revenue. It currently pays a dividend of $2.38 a share, which provides a dividend yield of more than 6 percent.
Benchmark Electronics
From Angleton, Texas, comes Benchmark Electronics Inc. (BHE). It’s a contract electronics manufacturer, making circuit boards and other electronic assemblies in manufacturing plants around the world. That’s a tough business: You can cut your hand on the razor-thin profit margins.
In that challenging environment, Benchmark has managed to eke out profits in 13 of the past 15 years. The stock is attractively cheap now at 0.82 times book value, 0.39 times revenue and about 14 times recent earnings. American National
Next I call your attention to American National Insurance Co. (ANAT), selling for 0.63 times book. This Galveston, Texas, company offers a wide range of life, health, property and casualty insurance products. Although the company had revenue of $3 billion last year, it remains uncovered by Wall Street.
The company has posted a profit in 14 of the past 15 years. Last year was its second-best year, the best having been in 2013.
Endurance Specialty
If you need to insure your crops against hail or your board of directors against lawsuits, Endurance Specialty Holdings Ltd. (ENH) might be the insurance provider you’re looking for. The company provides marine, agricultural, errors & omissions, and other specialty insurance policies. It also engages in reinsurance and is based — like many reinsurers — in Bermuda.
Only two of the seven Wall Street analysts who follow Endurance currently recommend the stock. This puts me where I usually like to be — advocating an unpopular stock that I believe may return to popularity.
Tutor Perini
Conversely, all six Wall Street analysts who follow Tutor Perini Corp. (TPC) rate it a “buy.” I don’t usually like to side with the majority. But in this case I believe the analysts are right.
An engineering and construction company based in Sylmar, Calif., Tutor Perini is known for constructing hotel-casinos, and also does a wide variety of other projects. It is not too heavy on energy projects, the dearth of which is hurting many of its competitors. The company’s profits swing wildly from year to year, but it has stayed in the black for 13 of the past 15 years.
Tutor Perini stock often sells for less than book value. Right now it is cheaper than usual at 0.61 times book.
Disclosure: I own Formula Systems and Travel Centers of America for some clients. I currently have no positions in the other stocks mentioned.