4 Stocks Trading Under Book Value, And Why ArcelorMittal Tops The List

|
Includes: AA, GLW, KEY, MT
by: Takeover Analyst

What follows is a list of companies that are trading under book value. They cover a variety of different industries: Aluminium, steel & iron, technology, and regional banking. Of the four, ArcelorMittal is viewed most preferably on the Street with a rating of "strong buy". While uncertainty in end market demand in tech, and regulatory headwinds in regional banking will hold back value in those industries, the rise of an industrial economy in emerging markets will help drive strong risk-adjusted returns for steel producers.

Alcoa (AA)

Alcoa is rated a "hold" on the Street and trades at a respective 19.6x and 10.8x past and forward earnings while offering a dividend yield of 1.2%. The P/B ratio is 0.81. It is highly volatile with a beta of 2.1.

Consensus estimates for Alcoa's EPS forecast that it will decline by 19.4% to $0.58 in 2012 and then grow by 65.5% and 27.1% in the following two years. Of the 19 revisions to estimates, 16 have gone down for a net change of -38.1%. Assuming a multiple of 14x and a conservative 2013 EPS of $0.93, the rough intrinsic value of the stock is $13.02, implying 25.7% upside. It is likely, however, that the multiple will decline even more considering continued macro uncertainty.

Click here for more analysis.

ArcelorMittal (NYSE:MT)

ArcelorMittal is rated a "strong buy" on the Street and trades at a respective 15.9x and 8.7x past and forward earnings while offering a dividend yield of 3.4%. The P/B ratio is 0.56. It is also highly volatile with a beta of 2.2.

Consensus estimates for ArcelorMittal's EPS forecast are that it will grow by 5% to $2.12 in 2011 and then by 8.5% and 52.2% more in the following two years. Assuming a multiple of 12x and a conservative 2012 EPS of $2.27, the rough intrinsic value of the stock is $27.24, implying 25% upside.

Click here for more analysis.

Corning (NYSE:GLW)

Corning is rated a "hold" on the Street and trades at a respective 6x and 7.5x past and forward earnings while offering a dividend yield of 2.4%. The P/B ratio is 0.95. It is one of my top picks, given the major catalyst in Gorilla glass and greater substitution towards LCD-TVs.

Consensus estimates for Corning's EPS forecast are that it will decline by 14% to $1.78 in 2011, decline by 5.1% in 2012, and then grow by 2.4% in 2013. Assuming a multiple of 12.5x and a conservative 2012 EPS of $1.64, the rough intrinsic value of the stock is $20.50, implying a staggering 61.8% upside.

Click here for more analysis.

KeyCorp (NYSE:KEY)

KeyCorp is rated a "hold" on the Street and trades at a respective 7.7x and 10.2x past and forward earnings while offering a dividend yield of 1.5%. The P/B ratio is 0.82. It is 10% less volatile than the broader market.

Consensus estimates for KeyCorp's EPS forecast are that it will grow by 97.7% to $0.87 in 2011, decline by 11.5% in 2012, and then grow by 6.5% in 2013. Assuming a multiple of 9x and a conservative 2012 EPS of $0.73, the rough intrinsic value of the stock is $6.57, implying -16.6% downside.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here