3 Surprising Stocks Trading Below Book Value

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Book value is not always a great metric to measure against. The book value of a company doesn’t necessarily mean there’s some floor against which one should measure a company’s minimal value. After all, if a company is headed for bankruptcy, it may be trading below book value but not below liquidation value.

book valueHowever, searching for stocks that trade at a relatively low book value can be a good reason to examine a company for possible stock purchase. It may be an indicator of value that presses you to examine other metrics.

Book value is defined as assets minus intangible assets minus liabilities. In this case, we’re looking for stocks with a price-to-book ratio of 1 or less.

These three companies came up on that book value screen, and on further examination, it seems like they may be worth considering as additions to various types of portfolios.

Kindred Healthcare Inc. (KND)

book value kindred healthcareKindred Healthcare Inc. (KND) is just the kind of company I might not find without a screen like the one we’re using. I’m glad I found it, though, because it has quite a footprint for its four divisions: hospital services, nursing centers, rehab and care management. That’s a nicely diverse set of offerings.

Transitional care hospitals require specific expertise. Having assisted living facilities as part of the total operation allows for diversification in a competitive market. The same goes for rehab. Care management is another name for home services, for things like hospice and private duty nurses.

Kindred has an incredible footprint, offering its services in 2,300 locations, of which 100 are transitional hospitals, 100 are nursing centers, 109 are rehab locations, and 105 are home care locations.

KND stock’s price-to-book is at 0.99. The company’s balance sheet is in fine shape, generating modest but reliable cash flow which helps pay its 2.3% dividend. KND stock is growing EPS at 13% and trades at 18x earnings. KND is a bit expensive, but it’s a good operation and worth a look for a long-term portfolio.

Omega Protein (OME)

book value omega proteinOmega Protein (OME) is just the kind of little company I like. OME is a fishing company that has been around for 100 years. It works in a highly specialized niche, producing omega-3 fish oil supplements and other ingredients for supplements. It also produces fish-based food products for animals.

OME stock is not a big splashy company, but tends to its knitting and is growing EPS at 10% annually, while trading at 9x estimates. OME stock has more cash than debt, produces a little free cash flow each year and just soldiers on.

I expect OME might get bought out some day by a large supplement company. I think you buy it for speculative reasons and because it is cheap with limited downside. It has a price-to-book ratio of 1.1.

Ensco plc (ESV)

book value ensco stockEnsco plc (ESV) surprised me. I would have thought very few oil service companies would be anywhere close to book value, but Ensco is trading right at book value, and it pays a 5.4% dividend.

Those metrics alone make ESV stock a slam dunk for income investors. ESV stock has always managed its balance sheet very well, and its $12.8 billion in equipment (like oil rigs) is where its book value comes from.

Oil will always be in demand, and while the need for oil drillers like Ensco will ebb and flow, Ensco isn’t loaded down with debt, and it generates enough cash flow to both survive and pay a dividend. You want to have exposure to energy in any kind of portfolio, but retirement and income investors in particular should feel comfortable with ESV stock.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets at @ichabodscranium.


Article printed from InvestorPlace Media, https://investorplace.com/2014/08/book-value-cheap-stocks/.

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