Grow Embedded Value

One of my rules of thumb in equity investing is that if I buy companies trading below tangible book value,  with earnings yields over 10%, it is difficult to lose value, and the odds favor gaining value.

But there are some caveats:

  • Analyze the balance sheet, highly indebted companies are not to be trusted, but that varies by industry.
  • Longer dated assets, like property, plant & equipment should be discounted.
  • Banks and REITs must be scrutinized carefully, because of their weak liability structures.
  • Foreign companies need extra scrutiny, because the disclosures are often not as good.  This goes triple for Chinese companies.
  • Make sure you are not investing in a “buggy whip” industry, particularly in the era of the internet.  How can your company be disrupted?

The idea is a simple one.  Buy companies below their tangible book value when they have good earnings, and good earnings prospects. Over a long enough period of time, the growth in tangible book value will help drive growth in the stock price.

For companies with over $100 million in market capitalization, here are the companies that fit this description:

companytickerimg_desccountryexchg_descP / TBP / EExpected P/EMkt capLT Debt/ Equity
AerCap Holdings N.V.AER0939 – Rental & LeasingNetherlandsN – New York

0.66

7.6

5.2

1524.4

263.6

Aircastle LimitedAYR0939 – Rental & LeasingUnited StatesN – New York

0.64

8.4

8.1

931.2

202.1

American International Group,AIG0715 – Insurance (Property & Casualty)United StatesN – New York

0.55

2.9

9.8

56637

73.6

Anworth Mortgage Asset CorporaANH0933 – Real Estate OperationsUnited StatesN – New York

0.94

7.8

7.9

917.8

3.8

Assurant, Inc.AIZ0709 – Insurance (Life)United StatesN – New York

0.74

5.7

6

2992.7

19.6

AXA (ADR)AXAHY0709 – Insurance (Life)FranceO – Over the counter

0.88

7.6

5.8

29204.3

21.5

Axis Capital Holdings LimitedAXS0715 – Insurance (Property & Casualty)BermudaN – New York

0.86

8.3

8.8

4325.9

19.3

AXT, Inc.AXTI1033 – SemiconductorsUnited StatesM – Nasdaq

0.94

7.5

9.9

129

2.8

Banco Bilbao Vizcaya ArgentariBBVA0724 – Money Center BanksSpainN – New York

0.9

8.7

6

34554.8

250.4

Barclays PLC (ADR)BCS0727 – Regional BanksUnited KingdomN – New York

0.42

6.9

3.6

31291.9

44.7

Callon Petroleum CompanyCPE0609 – Oil & Gas OperationsUnited StatesN – New York

0.86

1.7

5.8

171.6

62.6

Chimera Investment CorporationCIM0703 – Consumer Financial ServicesUnited StatesN – New York

0.73

4.6

5.3

2434.6

59.2

China Gerui Adv Mtals Grp LtdCHOP0121 – Iron & SteelChinaM – Nasdaq

0.55

2.3

1.7

157.4

0

China Zenix Auto InternationalZX0415 – Auto & Truck PartsChinaN – New York

0.49

1.8

1.4

127.3

0

Citigroup Inc.C0724 – Money Center BanksUnited StatesN – New York

0.53

7.4

5.8

77291.7

165.3

Corning IncorporatedGLW1024 – Electronic Instruments & ControlsUnited StatesN – New York

0.95

8

8.4

19410

14.7

Crexus Investment CorpCXS0933 – Real Estate OperationsUnited StatesN – New York

0.85

6.6

9.4

779.2

0

Deutsche Bank AG (USA)DB0727 – Regional BanksGermanyN – New York

0.65

7.6

4.7

31543.1

318.7

GeoEye Inc.GEOY0909 – Business ServicesUnited StatesM – Nasdaq

0.8

7.3

8.7

358.5

97.6

Hardinge Inc.HDNG0218 – Misc. Capital GoodsUnited StatesM – Nasdaq

0.74

8

7.4

105.1

4.3

Homex Development Corp. (ADR)HXM0215 – Construction ServicesMexicoN – New York

0.91

8.6

5.5

846.4

85.4

Ingles Markets, IncorporatedIMKTA0957 – Retail (Grocery)United StatesM – Nasdaq

0.91

9.9

8.2

400

183.1

Ingram Micro Inc.IM1006 – Computer HardwareUnited StatesN – New York

0.77

9.6

7.6

2591.2

8.7

Jinpan International LimitedJST1024 – Electronic Instruments & ControlsChinaM – Nasdaq

0.85

5.3

4.7

132

0.8

Kelly Services, Inc.KELYA0909 – Business ServicesUnited StatesM – Nasdaq

0.77

6.4

7.4

462.9

0

KeyCorpKEY0727 – Regional BanksUnited StatesN – New York

0.83

8.4

9.5

7339.2

90.7

KKR Financial Holdings LLCKFN0718 – Investment ServicesUnited StatesN – New York

0.89

5.1

4.7

1557.4

0

Knightsbridge Tankers LimitedVLCCF1118 – Water TransportationBermudaM – Nasdaq

0.61

6.9

9.4

215.2

42

KT Corporation (ADR)KT0915 – Communications ServicesSouth KoreaN – New York

0.89

9

7

7041.3

72.6

Le Gaga Holdings Ltd ADRGAGA0509 – CropsHong KongM – Nasdaq

0.89

8.1

4.1

200.3

5.3

Lihua International IncLIWA0127 – Misc. Fabricated ProductsChinaM – Nasdaq

0.7

3.1

2.1

161.3

0

LUKOIL (ADR)LUKOY0606 – Oil & Gas – IntegratedRussiaO – Over the counter

0.68

4.2

4

47753.8

10.4

Mechel OAO (ADR)MTL0124 – Metal MiningRussiaN – New York

0.8

4.6

3.5

3322.6

139.6

Metlife IncMET0709 – Insurance (Life)United StatesN – New York

0.69

5.7

5.4

32402.5

45.3

Mizuho Financial Group Inc. (AMFG0727 – Regional BanksJapanN – New York

0.9

3.5

8.5

40165.5

236.3

Navios Maritime Holdings Inc.NM1118 – Water TransportationGreeceN – New York

0.53

4.6

7.6

350.3

131.3

Newfield Exploration Co.NFX0609 – Oil & Gas OperationsUnited StatesN – New York

0.98

5.9

8.8

3943.1

72.2

Olympic Steel, Inc.ZEUS0127 – Misc. Fabricated ProductsUnited StatesM – Nasdaq

0.86

8.8

6.4

181.8

95.4

Orbotech Ltd.ORBK1033 – SemiconductorsIsraelM – Nasdaq

0.78

6.3

9.7

329.7

13.1

Patterson-UTI Energy, Inc.PTEN0612 – Oil Well Services & EquipmentUnited StatesM – Nasdaq

0.93

6.6

8.3

2276.5

18.7

Petroleo Brasileiro SA (ADR)PBR0606 – Oil & Gas – IntegratedBrazilN – New York

0.9

6.8

6.3

126006.1

43.5

Phoenix Companies, Inc., ThePNX0709 – Insurance (Life)United StatesN – New York

0.21

3.6

3.7

203.5

45

Popular, Inc.BPOP0727 – Regional BanksPuerto RicoM – Nasdaq

0.52

8.9

6.1

1664

47.1

Protective Life Corp.PL0709 – Insurance (Life)United StatesN – New York

0.7

7.2

8

2557

53

Reinsurance Group of America IRGA0706 – Insurance (Accident & Health)United StatesN – New York

0.68

7.8

7.2

4059.3

34.9

Republic Bancorp, Inc. KYRBCAA0727 – Regional BanksUnited StatesM – Nasdaq

0.94

4.7

8.7

489.6

7.7

REX American Resources CorpREX0103 – Chemical ManufacturingUnited StatesN – New York

0.65

7.8

6.8

163.9

41

Royal Caribbean Cruises Ltd.RCL1118 – Water TransportationUnited StatesN – New York

0.71

9.7

9.5

5542.1

91.9

Societe Generale SA (ADR)SCGLY0724 – Money Center BanksFranceO – Over the counter

0.29

5.8

3.8

16945.2

20.7

StanCorp Financial Group, Inc.SFG0706 – Insurance (Accident & Health)United StatesN – New York

0.84

2.5

8.7

1676.1

14.8

StealthGas Inc.GASS1118 – Water TransportationGreeceM – Nasdaq

0.38

8.5

5

122.1

98.5

Symetra Financial CorporationSYA0709 – Insurance (Life)United StatesN – New York

0.47

7.8

8.5

1494.6

0

Tech Data CorpTECD1006 – Computer HardwareUnited StatesM – Nasdaq

0.96

9.8

8

1918.9

2.9

Ternium S.A. (ADR)TX0121 – Iron & SteelLuxembourgN – New York

0.81

8.3

5.8

3993.4

26.2

Thompson Creek Metals Company,TC0124 – Metal MiningUnited StatesN – New York

0.33

3.5

5.7

563.9

20.8

Transportadora de Gas del SurTGS0609 – Oil & Gas OperationsArgentinaN – New York

0.43

5.6

7.5

191.7

80.6

TravelCenters of America LLCTA0963 – Retail (Specialty Non-Apparel)United StatesA – American

0.51

4

3.7

145

31.9

Triple-S Management Corp.GTS0806 – Healthcare FacilitiesPuerto RicoN – New York

0.76

9.4

8.6

510.6

18.2

Unit CorporationUNT0612 – Oil Well Services & EquipmentUnited StatesN – New York

0.94

8.7

9

1819.7

15.8

Valero Energy CorporationVLO0609 – Oil & Gas OperationsUnited StatesN – New York

0.86

9.1

5.6

13578.5

40.5

Vishay IntertechnologyVSH1033 – SemiconductorsUnited StatesN – New York

0.97

7.7

7.1

1433.8

23.4

Woori Finance Holdings Co., LtWF0727 – Regional BanksSouth KoreaN – New York

0.57

4.5

4.8

8482.1

0

Xinyuan Real Estate Co., Ltd.XIN0215 – Construction ServicesChinaN – New York

0.33

2

2.1

215.1

8.8

Yongye International IncYONG0103 – Chemical ManufacturingChinaM – Nasdaq

0.55

1.9

1.3

163.7

2.8

ZHONGPIN INC.HOGS0515 – Food ProcessingChinaM – Nasdaq

0.89

6.6

5.5

371.9

18.1

Zuoan Fashion Ltd (ADR)ZA0403 – Apparel/AccessoriesChinaN – New York

0.6

2.4

1.8

102.1

0

Full disclosure: long AIZ, PBR, RGA, SFG, VLO

PS — be wary of Chinese companies, I mean it…  Also, use the Ctrl-Minus key to view this in entire.