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The main requirement to make it to this list was that the stock had to be trading at least 30% below book value. Many value investors feel that buying stocks below book value is a prudent and safe way to invest in the market. However, just because a stock is trading below book does not mean everything is fine; other metrics such as profit growth, etc. should be also looked into. It is profit growth that creates value; looking for stocks trading below book value is a good point to begin one's search if one is a value investor. If you are in search of higher yields and are willing to take on more risk, this article might prove to be of interest to you.

Other filters that were applied in creating this list:

1) Market cap of $ 1billion or higher; the only exception was RDN and it was included because it is trading over 70% below book value and could make for a good speculative play.

2) Paying dividends for 3 or more years.

3) A forward PE of 12 or lower.

4) Revenue of 1 billion or higher.

5) Operating cash flow of $150 million or more. OCF is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt; the cash flow is what pays the bills. The only exception is RDN and it was included on this list because it is trading at over 70% below its book value.

We also listed the EV value of each company. EV value is a combination of the market cap, debt, minority interests, preferred shares less total cash and cash equivalents. This provides a better picture because it is a more accurate representation of a company’s value in contrast to simply looking at the Market cap.

In addition to the four stocks mentioned below two other stocks also look interesting Lowes Inc (L) and Horace Mann Educators Corp (HMN)

Lowes is another play trading well below book value. It is currently trading 21% below book, has a forward PE of 11.4, operating margins of 22.5%, a revenue of 1.08 Billion and a levered free cash flow rate of 1.50 billion. Insiders have 22% stake in this company, and it has a ROE of 8.31%.

HMN is trading roughly 50% below book value. It has a forward PE of 7.42, quarterly revenue growth (yoy) of ,4.3%quarterly earnings growth (yoy) of 14.7%, a three year dividend growth rate of 13.29%, a yield of 3.2%, a total three year return of 61.8%, and it has been paying dividends since 1992.

Stock

Dividend

Market Cap

Forward PE

EBITDA (ttm)

Quarterly revenue growth

Operating margins

Revenue

Operating

Cash flow

CNA

1.60

7.1B

9.9

1.37B

-8%

14.3

8.99B

1.40B

TI

9.40

20.7B

15

16.35B

12.60%

23.3%

39.8%

11.54B

RDN

0.4

317M

N/A

6.30M

-10%

-4.89%

1.52B

-681M

BDN

7.00

1.17B

6.28

318M

3.10%

20.88%

588M

191M

CNA Financial Corp. (CNA)

It has enterprise value of $7.8 billion and price/sales value of 0.79. It has a revenue growth (yoy) of -8%, a total return of 81% for the past three years, and has been paying dividends since 2007. CNA is trading roughly 40% below book value. CNA has a levered free cash flow rate of $832 million. Free levered cash flow rates provide investors with a better picture of the company's ability to generate cash in contrast to EPS. Earnings can be manipulated through the use of accounting gimmicks but it's much harder to fake cash flow. Levered free cash flow is the amount of cash available to stock holders after interest payments on debt are made. A company with a small amount of debt will only have to spend a modest amount of money on interest payments, which in turn means that there is more money to send to shareholders in the form of dividends and vice versa.

Insider action; on the 5th of August director purchased 40,000 shares at $24.26 for a total outlay of $970,400.

Ideally CNA should hold above 24 on a weekly basis. If it can achieve this, it has a fair chance of testing the 29 plus ranges.

  • ROE 6.25%
  • Return on assets 1.42%
  • Total debt $2.64B
  • 200 day moving average $ 25.73
  • Book value $48.35
  • Dividend yield 5 year Average N/A
  • Dividend rate $0.40
  • Payout ratio 14%
  • Dividend growth rate 5 year average 0.00%
  • Consecutive dividend increases 0 years
  • Paying dividends since 2007
  • Total return last 3 years 81%
  • Total return last 1 year -1.65%

Telecom Italia SPA (TI)

It has enterprise value of $67 billion, price/sales value of 0.55 and a strong levered free cash flow of $509 million. It has a revenue growth (yoy) of 12%, a quarterly earnings growth rate (yoy) of 32.7%a five year dividend growth rate of 5.4%, and it has been paying dividends since 2005 TI is trading roughly 40% below book value. TEO reported a net profit of 602 million pesos ($136 million) for the 3rd quarter compared with a profit of 444 million pesos a year before. The net profit came in above analysts' expectations which ranged from 577-618 million pesos. Motley fool rated TEO as one of the fastest growing telecom stocks with a 5-sales growth of 20.7%, 5-year EPS growth of 17.6% and a 5-year ROIC (return on investment capital) in the 11.44%-34% ranges

It has strong support at $10.00 and should not close below this level on a weekly basis. A weekly close below 10 will indicate that it could go on to put in a series of new lows before a bottom is in place. In contrast, a weekly close above 12.00 will indicate that there is a strong chance it could test the $14 plus ranges before pulling back.

  • ROE 2.79%
  • Return on assets 5.03%
  • Total debt $51.9B
  • 200 day moving average $ 12.03
  • Book value $18.24
  • Dividend yield 5 year Average 5.4%
  • Dividend rate $0.53
  • Dividend growth rate 3 year average 27.98%
  • Consecutive dividend increases 0 years
  • Paying dividends since 2005
  • Total return last 3 years -7%
  • Total return last 1 year -8%

Radian Group Inc (RDN)

It has enterprise value of - $4.13 billion and price/sales value of 0.21. It has a revenue growth (yoy) of -4.89%, a total return of -28% for the past three years, a 5 year dividend growth rate of 0.5%, and has been paying dividends since 1993 Short % of Float is17.2% which makes it a potential candidate for a short squeeze. RDN is trading roughly 77% below book value. This is a really speculative play and only speculators should even consider opening up a position in this stock; having said that it could make for a good speculative play as it has rather strong support at the two price mark. It has managed to hold this level since Aug despite the many sell offs the market has experienced. As long as it does not close below 2.00, the outlook will remain neutral to bullish. A weekly close of 3 would indicate that things are heating up and could set up RDN for a test of the 4.50-5.00 ranges. Insiders have been aggressively opening up positions in this stock; insiders only invest in their companies to make money. Thus, these rather large purchases indicate/suggest that they think the future might be bright going forward. Insiders have purchased over 236,000 shares since August 8, 2011 at a price of $2.00-$2.54 per share. To access the full list of transactions click here.

  • ROE -44%
  • Return on assets 0.59
  • Total debt $1.09B
  • 200 day moving average $ 3.02
  • Book value $9.67
  • Dividend yield 5 year Average 0.5%
  • Dividend rate $0.01
  • Dividend growth rate 5 year average -24%
  • Consecutive dividend increases 0 years
  • Paying dividends since 1993
  • Total return last 3 years -28%
  • Total return last 1 year -69%

Brandywine Realty Trust (BDN)

It has enterprise value of $3. 68 billion and price/sales value of 2.01. It has a revenue growth (yoy) of 3%, a total return of 83% for the past three years, a 5 year dividend growth rate of 11.5%, and has been paying dividends since 1996 Short % of Float is13.8% which makes it a potential candidate for a short squeeze. BDN is trading roughly 31% below book value.

Ideally, BDN would/should trade and test its lows but should not close below $6.77 on a weekly basis. A weekly close above $9 should lead to a test of the $11.20-$12.50 ranges.

  • ROE -0.71
  • Return on assets 1.61%
  • Total debt $2.49B
  • 200 day moving average $ 9.78
  • Book value $13.29
  • Dividend yield 5 year Average 11.5
  • Dividend rate $0.60
  • Dividend growth rate 5 year average -13%
  • Consecutive dividend increases 0 years
  • Paying dividends since 1996
  • Total return last 3 years 83%
  • Total return last 1 year -10.79%

Disclaimer: This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is very important that you check the finer details, do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.

Source: 4 Magnificent Value Plays With Dividends