Jubak's Journal Recent articles: • The 10 best income stocks, 8/3/2004 • 5 banks thrive in fat-cat suburbs, 7/30/2004 • The high cost of do-it-yourself cost-cutting, 7/27/2004 More... | Jubak's Journal 5 deep-value stocks Look at sectors like technology, financials and transportation. Investors hate these sectors so much that you can pick up good and occasionally even great companies for roughly book value. By Jim Jubak Theres certainly not much momentum in this stock market. And theres certainly not enough to justify buying a stock near the top of its range in the hope that the market will carry it higher. But there's value to be found in this stock market. I mean deep value. Not the earnings-growth-at-a-decent-price kind of value, but the buy-a-dollar-of-assets-for-less-than-a-dollar kind of value. In this market, you can find dozens of stocks selling at book value or less. (Book value is the value of a companys assets as carried on its balance sheet. It can be misleading if the real value of the assets is lower than the accounting value of the assets, but book value is still a good place to start if youre looking for deep-value stocks.) But you wont find this deep value by looking in the usual places. Long-scorned utilities, for example, arent cheap. Entergy Sitting on deep-value stocks But take a look at sectors such as technology, financials and transportation. Investors now hate these sectors so much that you can pick up good and occasionally even great companies for just about their book value. You might have to sit on deep-value stocks like these for a while -- until investors change their attitude toward these sectors -- before you see the stocks move up to reflect the true value of their businesses. But if youre a true value investor, youre used to the trade off between patience and profit.
To find the five stocks that Im going to highlight in todays column -- three of which were picks on my regular 11:20 a.m. ET Wednesday appearance on CNBCs "Morning Call" and two of which are exclusive for MSN Money readers -- I built a screen using our stock screener. I looked for stocks that on Wednesday were trading at no more than 20% above their book value. To ensure liquidity, I required that each stock have a market capitalization of at least $1 billion. This gave me 141 stocks. To help me pick the best of that group, I asked the screener to display the StockScouter rating for each stock and the consensus Wall Street earnings growth estimate for next year. (You can follow this link to the stock screen.) Here are the three stocks from that list that I discussed on CNBC. Taking a pounding All this sent the stock down 15%, which puts the shares just where value investors would find them tempting. The company is going through a restructuring, which should reduce costs and increase leverage when revenues turn up in the fourth quarter. In the disappointing second quarter, margins still managed to climb to 10.6%, up 1.2 percentage points from the first quarter. Working on the railroad Contrast the performance at CSX with that of competitor Norfolk Southern But when all is said and counted, CSX is a cheap stock. It trades at just 1.01 times book value. Only twice, in 2000 (at a price-to-book ratio of 0.9) and in 2002 (when the price-to-book ratio hit 1) has the stock been cheaper in the last decade. And thats with the peak shipping season for railroads just now getting started. Like Buffett Cincinnati Financial has delivered average annual returns of 11.3% over the last 10 years. But recently, the stock markets fear of the banking sector in general and worries about Fifth Third Exclusive picks for CNBC.com on MSN Money The company reported 5% sequential revenue growth in the second quarter and projected 7% to 11% sequential growth for the third quarter. Its best quarters for 2004 are still ahead of it: Intersils chips go into products such as DVDs, laptops and flat-panel screens that sell well in the end-of-the-year shopping season. Its the uncertainty about when a deal might be struck to unlock the value of Vodafones stake in the wireless operation that has depressed the share price. Investors worry that Vodafone might take on a truckload of debt to buy out Verizon or that the current situation might simply drag on. In the meantime, though, Vodafone has some pretty good businesses in Europe and Japan that will generate about $10 billion in cash this year. The company has indicated that it will return about 50% of that cash flow to investors. How long will you have to wait to see the values in these five stocks recognized by the market? The best case scenario says that a more positive market toward the end of the year would move these shares. Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday. E-mail Jim Jubak at jjmail@microsoft.com. At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Berkshire Hathaway. He does not own short positions in any stock mentioned in this column. | ||||||||||||||||
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