7 Value Stocks to Buy Priced at Less Than Their Book Value


  • There are catalysts that could help bridge the gap between book value and trading price with these stocks to buy.
  • Acacia Research (ACTG): Cash-rich NOL shell trading at 21% discount to book value.
  • Beazer Homes USA (BZH): Make a contrarian wager on this deep value homebuilding play.
  • Citigroup (C): Buffett’s recent purchase may signal the market is wrong in giving it a discount valuation.
  • Centennial Resource Development (CDEV): Despite a mixed response by investors, a recent merger could pay off.
  • Jackson Financial (JXN): Annuities provider trading at low earnings multiple, high discount to book value.
  • New York Community Bancorp (NYCB): High-yield stock with a pending merger deal that could move the needle.
  • Olympic Steel (ZEUS): Investors may be underestimating how long the metals boom lasts.
value stocks to buy - 7 Value Stocks to Buy Priced at Less Than Their Book Value

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As growth stocks continue to struggle, now may be a great time to pursue a value investing approach. In a recent investor survey, 74% of participants stated they believe value will beat growth this year, as rising interest rates continue to dampen the appeal of growth plays. So, what type of value stocks should you buy?

There are many styles of value investing. You can focus on buying stocks that sell at low valuations. Whether low on an absolute basis, or low relative to peers. You can also pursue a more “old school” style: buying stocks trading less than their book value.

In other words, stocks trading for less than the net value of their assets. Success in doing so is easier said-than-done, as many times there’s a good reason why a stock is selling at a discount to book. However, in the case of these seven value stocks to buy, there are catalysts in play that could help bridge the gap between book value and trading price.

Ticker Company Current Price
ACTG Acacia Research $4.68
BZH Beazer Homes $16.37
C Citigroup $52.59
CDEV Centennial Resource Development $8.52
JXN Jackson Financial $35.08
NYCB New York Community Bancorp $9.98
ZEUS Olympic Steel $34.77

Acacia Research (ACTG)

Acacia Research (NASDAQ:ACTG) is a micro-cap value stock. It is a net operating loss (NOL) shell, controlled by investment firm Starboard Value.

Its objective is to monetize the rest of its U.S. federal tax-loss carryforwards, mainly through the purchase of undervalued companies. Yet besides the hidden asset of NOLs, ACTG stock also trades at a decent discount to book. It has a tangible book value of $6.01 per share, versus a stock price of around $4.75 per share.

Even better, almost all of its assets are either cash or short-term investments. With Acacia, you’re getting a dollar for around 79 cents. You’re also getting the optionality of its management putting this war chest to work. It has done so successfully in the past, as seen from the gains realized from the liquidation of its life sciences patent portfolio. Classic value investors should consider this stock.

Beazer Homes USA (BZH)

Sure, it may seem too late to get into a homebuilder stock like Beazer Homes (NYSE:BZH) this late in the housing cycle. The cyclicality in homebuilding can be brutal, which helps explain why this stock trades for just 2.6x estimated earnings, and for just under 60% of its tangible book value.

However, it’s possible that a housing downturn has been too overly priced into BZH stock. Despite rising interest rates, America’s housing shortage could keep demand steady. The industry may not be at risk of experiencing a repeat of the late-2000s financial crisis. Not only that, this homebuilder is playing this cautiously, by de-leveraging its balance sheet.

If the housing market stays strong, or simply is resilient during the current rising interest rate environment? Beazer shares could bounce back, after getting hammered since January. This is a contrarian value play to add to your watchlist.

Citigroup (C)

Many of the value stocks to buy listed above and below are small-cap or micro-cap names. In the case of Citigroup (NYSE:C), however, we’re talking about a large-cap banking stock. That’s not something you can say is “under the radar.”

As such, you may assume that the market is correct in pricing the money center bank at a more than 40% discount to book value. After all, as a Seeking Alpha commentator recently argued, Citi has been dealing with heavy loan losses, high exposure to Russia and could fare worse in a recession.

On the other hand, the recent purchase of $3 billion in C stock by Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B) may counter the bearish claims this is a low-quality “value trap.” While you shouldn’t buy it just because “Warren’s buying it,” the fact he has suggested it makes it worth a closer look.

Centennial Resource Development (CDEV)

Over the past two years, due to a rebound in energy prices, Centennial Resource Development (NASDAQ:CDEV) has made a stunning recovery. It’s up nearly 7x during this timeframe. Lately though, shares have slid lower.

Mainly, due to mixed reactions about this independent oil and gas company’s merger with privately held Colgate Energy Partners. There are concerns this deal is more favorable to Colgate’s owners than individual investors in CDEV stock. However, as sell-side analysts at Truist have pointed out, the deal has many positives.

This includes a reduction of the company’s leverage, enabling it to increase return of capital (dividends, buybacks) to shareholders. This, plus the fact it trades for a price-to-book ratio of 0.73x, may make it a value stock worth considering. To top things off, Centennial trades at a low earnings multiple (4.3x). If the Colgate deal works out, it could move shares to higher levels.

Jackson Financial (JXN)

Spun off from Prudential plc (NYSE:PUK) last year, Jackson Financial (NYSE:JXN) is a leading provider of annuities in the U.S. It’s also a bona fide deep value stock, trading for just 1.8x earnings, and at a 70% discount to its book value.

Now, there are some caveats with JXN stock. The market isn’t giving you a dollar for 30 cents, with zero strings attached. As one investment firm that bought it post-spinoff discussed in a letter to its investors, the complex nature of the annuities business makes using metrics like GAAP book value less helpful than with other industries.

Still, given its heavy valuation discount and paying out a high dividend (forward yield of 6.3%), and its aggressive share buyback activities? This old-school value play could pay off for investors. You may want to take a look at the stock as it bounces back from this month’s dip.

New York Community Bancorp (NYCB)

New York Community Bancorp (NYSE:NYCB) has caught the eye of income investors, as its dropping stock price raises its forward dividend yield (currently at 6.86%). Its drop in price year-to-date has also pushed it down to a moderate (around 28%) discount to book value.

NYCB stock has performed poorly over the past decade. But when its pending merger with Flagstar Bancorp (NYSE:FBC) eventually closes? Things could improve. Enabling it to both diversify further away from its legacy market (financing of rent-regulated apartment buildings in New York City), as well as grow its deposit base, this transaction could turn this long-time value trap into a strong performer.

While starting to bounce back, after dropping in April and May, a big move may take time. Delays in getting the necessary Federal and state-level approvals have put the Flagstar deal on hold until later this year.

Olympic Steel (ZEUS)

A small-cap steel stock, Olympic Steel (NASDAQ:ZEUS) bolted in price earlier this year, thanks to the steel commodity shock resulting from Russia’s invasion of Ukraine.

This was atop another jolt for ZEUS stock that happened in 2021, as the metals boom came into full swing. Yet despite a 3x total jump in price since 2020, the steel products company continues to be a value play. It trades for less than 5x earnings, and at a 15% discount to book value.

With concerns an economic slowdown could bring an end to the metals boom, it makes sense why Olympic is priced so cheaply. At the same time, perhaps the market is underestimating how long the boom will last. Per analyst forecasts, the company is only expected to see a slight drop in its earnings-per-share ($8.31 in 2022 and $7.32 in 2023).

On the date of publication, Thomas Niel held a long position in ACTG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2022/06/7-value-stocks-to-buy-priced-at-less-than-their-book-value/.

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