Right now a hedge fund manager in New York, working remotely, is beginning the search for undervalued stocks, sometimes known simply as value stocks. Since the stock market has sold off so dramatically, is there anything tasty in the newly lower-priced batch that might look good when viewed long-term?
The 2 most likely quick metrics to find such possibilities are: book value and the amount of debt. Are there stocks now trading at levels below book? Among this group, are there any with little or no debt? That’s important because lack of debt tends to make it more likely that a company could hold on through a tough period.
Here are 5 stocks that might fit the mold:
American Eagle Outiffers
Right now you can buy shares in the stock at a 9% discount to book value. The price/earnings ratio of 6 is low especially when compared to the p/e of the Standard & Poor’s 500 which now comes in at 19. Earnings are way off this year even as the 5-year record looks good.
American Eagle has no long-term debt and the current ratio is 1.4. Whether they can sustain the current dividend level at 8.15% would be a question — given today’s conditions for apparel stores. The short float is about 10% which would be fuel for a rally under the right conditions.
Janus Henderson Group is a London-based asset management firm conducting operations globally.
The stock is trading at 51% of its book value. The price/earnings ratio is a low 6.39. Earnings are in the red this year. The 5-year record is positive. The company has a tiny amount of long-term debt and the current ratio is 3.4. Janus Henderson at this price is paying a 10.21% dividend.
Tilly’s is a clothing, shoes and accessories chain, USA-based. Their physical locations are closed, temporarily, but on-line sales continue.
Shares can be purchased now at a 33% discount from book and the price/earnings ratio is low at 4.75. Tilly’s has no long-term debt on the books and a current ratio of 1.4. They are not paying a dividend.
Third Point Reinsurance is a property and casualty insurance firm with headquarters in Bermuda.
The stock is trading at 47% of its book value. The price/earnings ratio of 3.32 is definitely low. Third Point has a small amount of long-term debt — it is greatly exceeded by shareholder equity. Earnings are great this year and the 5-year record is good as well. There is no dividend.
Tenaris is a Luxembourg-based metal fabrication company — they make steel pipes for the energy industry.
Shares are available for purchase at 61% of book. The price earnings ratio is 9.85. The 5-year earnings record is negative but this year is quite good. Shareholder equity vastly exceeds long-term debt. The current ratio is 3. At this price, Tenaris pays a 6.6% dividend.
That all of these are traded on the New York Stock Exchange makes it easier to research them: plenty of information is available.
Just so there is no confusion: these are not buy recommendations. The point is, with these metrics, such stocks are likely to begin appearing on the screens of investment institutions looking for value during this period of great uncertainty.
I wrote about my take on the methodology of value stock legend Benjamin Graham in this Forbes blog post from 2018.
Stats courtesy of FinViz.com.
I do not hold positions in these investments. No recommendations are made one way or the other. If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.
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