When a company trades for below its book value, the stock’s total market capitalization is less than the total worth of the company. Below are five companies trading below their price to book value. These five stocks were chosen because they represent a contrarian view in that investors are underappreciating a positive catalyst on the horizon for each company.
Alcoa Inc. (AA) – Alcoa Inc. is an aluminum company that is currently trading below its book value. The current price to book ratio is 0.76, which is trading at less than the industry ratio of 1.14. The volatility of the company is higher than the market, however, with a beta of 2.01. With earnings per share of $0.95, AA has a price to earnings ratio of 11.2. This is well below the industry average of 44.3 and the S&P 500’s ratio of 18.9. While being considered underpriced based on these ratios, AA does also offer a dividend to investors. The annual dividend of $0.12 gives the stock a yield of 1.10%. Comparing AA to its competitor Aluminum Corporation of China Limited (ACH), AA has the higher net income of $1.06 billion compared to $210.12 million. In addition, ACH has a much higher price to earnings ratio of 36.2. With the company’s upgrades in Canada, AA looks to drive down costs as well as increase output, increasing the profit margin as well as the company’s net income.
Bank of America Corp (BAC) – The country’s largest bank in regard to assets and branches is another stock trading well below its price to book value. BAC currently trades with a price to book ratio of 0.30, which is less than the industry ratio of 0.52. Although the stock has posted negative earnings per share of -$0.33, it could be a good candidate for a turnaround as Warren Buffett invested $5 billion in preferred shares with the company. Another positive aspect of the stock is its dividend. The current dividend yield is 0.60% or $0.04 annually. Compared to other major banks such as Citigroup, Inc. (C) and Wells Fargo & Company (WFC), BAC is the only one that has negative earnings, with C posting a net income of $11.01 billion and WFC posting $14.37 billion. Although this could be seen as a bad sign for the company, if the company is able to begin making a profit again, the price of the stock would easily rise with the potential of being a multi-bagger.
Comerica, Inc. (CMA) – With a beta of 1.40, CMA is one of the less volatile stocks on this list. However, the beta makes it slightly more risky than the market. The stock currently has a price to book value of 0.76, which is almost half the industry’s ratio of 1.33. The company’s earnings per share of $2.15 give the stock a price to earnings ratio of 12.3. This is right in line with the industry average of 12.6, but less than the S&P 500 of 18.9. CMA currently has an annual dividend of $0.40, which is a yield of 1.50%. The company is currently posting a net income of $389 million dollars which is higher than BAC, but lower than other competitors such as C and WFC. In regard to management effectiveness, CMA has a return on equity of 5.70% and a return on investments of 3.30%. Financially, the company does have debt, but not too much to be a major concern with a total debt to equity ratio of 0.74. Additionally, CMA has announced it will fully redeem about $24 million in trust preferred securities (TruPS). This should essentially allow the company to reduce its interest costs as these securities typically have a higher interest rate.
MBIA, Inc. (MBI) – This is one of the few stocks in this analysis that does not offer a dividend, MBI currently has a price to book value of 0.67. This is still less than the industry, which is at 0.99. However, MBI is almost three times as volatile as the market with a beta of 2.70. In some cases, having a lower price to book ratio means the company is undervalued, otherwise, the company could have problems that are a cause for concern with investors. In the case of MBI, the latter may be more accurate. The company is highly leveraged with debt as the total debt to equity ratio is 1.17. MBI currently has a negative price to earnings ratio of -$3.84. This is due to the company’s negative net income of $900.47 million, but MBIA is not alone in its losses. Competitor Radian Group Inc. (RDN) also has negative earnings with a net income of -$708.93. One positive note for the company is that the company has posted 3rd quarter profits due to a one-time gain on the value of insured derivatives. MBI posted a net income of $444 million, or $2.26 per share during the quarter. This is a vast improvement compared to the net loss of $213, or $1.06 per share, a year ago. If the company is able to improve these numbers and continue making a profit, then this could be a great turnaround stock.
JPMorgan Chase & Co. (JPM) – The final stock on this list is also one of the less volatile as it has a beta of 1.64. The company’s price to book ratio is 0.72, which is less than the industry at 1.14. The company’s profitable earnings per share of $4.69 give the stock a price to earnings ratio of 7.1, which is also less than the industry and S&P 500 at 9.4 and 18.9 respectively. The company is leveraged with debt as JPM has a total debt to equity ratio of 1.86. However, this may not be too big of an issue as the company remains profitable. Based on its competitors listed above, JPM appears to be one of the leaders in the industry with a net income of $18.55 billion. Overall, the outlook of the stock is good as analysts expect the stock price to continue to rise with a mean target price of $46.97. The company is in the best position to raise its dividend when compared with other major banks. Investors will act positively to any dividend increase going forward. Add this to the current annual dividend yield of 3%, or $1.00 annually, and this stock could be a profitable one for any investor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
