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.

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