The Least Valuable Players: 5 Underpriced Stocks for 2012
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While the markets may have been cruel and unforgiving for many investors since 2008, the upshot is a golden opportunity for bargain hunters and value investors alike. The “Great Recession” is technically over, but by no means does that indicate that stocks have returned to their appropriate price levels, and anyone willing to put in the time and effort can sort through the securities haystack to find an underpriced needle or two. Here are some names that jumped out at me:
1. AVX Corp (NYSE: AVX)
One of the easiest indications that a stock is undervalued is its price/book ratio. If a stock is trading at a price below its book value per share, then a buyer is essentially paying for less than the company’s net tangible assets per share, a bargain in almost any case. AVX, an electronic components manufacturer, is trading at a price/book ratio of 1.02 and an earnings multiplier of 8.7, very low by anyone’s standards. What is more, AVX offers a healthy dividend, carries no long term debt, and has posted an earnings per share growth of almost 25% over the last five years.
2. Corning Inc (NYSE: GLW)
Corning, a tech-based company, has a similarly low price/book ratio (.97) and has been in business since 1936. Over the past five years, Corning has increased its earnings per share by almost 43%, yet the company has an earnings multiplier of just 6.2. With a market capitalization of $21 billion, GLW represents a fairly low risk investment at an attractive price.
3. Archer-Daniels-Midland & Co (NYSE: ADM)
ADM, another large-cap company ($19.4 billion) that specializes in processing agricultural commodities, dates back to the 1920’s, meaning that it survived the Great Depression. Therefore, if we are to rely on history’s lessons, ADM should fare no worse in a modern economy. Priced at 8.9 times earnings and 1.06 times book value, ADM seems poised for advance.
4. L3 Communications Holdings LLC (NYSE: LLL)
L3 Communications supplies communications equipment to organizations ranging from NASA to The Department of Homeland Security. Though L3 lacks the longevity of the aforementioned companies, its dividends have increased nearly 20% over the past five years, not to mention a 14.5% rise in earnings per share. Compare these numbers to a P/E ratio of 7.7 and this looks like a smart purchase, even when taking into account recent cuts in defense spending.
Finally, I’m going to cheat a little bit and expand my last pick into an entire industry: the financials. The financial sector has underperformed for years, and a recovery is imminent. Huge banks like Citigroup (NYSE: C), JPMorgan Chase & Co. (NYSE: JPM), and Bank of America (NYSE: BAC) are all trading at less than 8 times earnings, with the latter of the group falling below $5 a share earlier this month. While these stocks have recently posted less than impressive earnings performances, the future prospects for such a depressed industry are encouraging.
The author owns no shares of the companies mentioned above.