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. (NYSE: APA), Fresh Del Monte Produce Inc. (NYSE: FDP), Genworth Financial Inc. (NYSE: GNW), Ingram Micro Inc. (NYSE: IM) and JetBlue Airways Corp. (NASDAQ: 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.