• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Financial Services

Stalking the Super-Cheap

This screen turned up a few old favorites and a new name for homework.
By TIM MELVIN Mar 12, 2012 | 02:40 PM EDT
Stocks quotes in this article: CWH, SWS, BPOP, MFG, MTU, RBS, AEG, IRE, RJET

Most of the conversations, research and analysis this morning is devoted to the art of NCAA Bracketotlogy. The tournament pairings have been announced and most of the business world is hard at work trying to craft a perfect bracket. With all the upsets in the conference tournaments this past weekend, a perfect bracket does not seem as easy as it may have just a week ago. I have never come close to bracket perfection, so I will just enjoy the great story of Loyola (Baltimore pride!) and spend some time reviewing the world of cheap stocks.

I sat down this morning and ran my "super cheap" screen to see whether any new ideas popped up. I run this screen several times a month, looking for companies that are trading at no more than 70% of book value. Unlike many of my other deep-value screens, I do not add any other valuation parameters for debt, cash flow or insider activity; I just want to see stocks that cover the whole gamut of cheap, be it distressed, traditional or special situation. Most of the list ends up on the cutting room floor, but doing the work is a worthwhile exercise nonetheless.

European banks and financials are still very cheap -- almost all of them are trading below half of book value. Most have moved up in the wake of ECB liquidity measures, and I am not sure I would chase them here even though they are "cheap." I have exposure to the sector in Royal Bank of Scotland (RBS), Bank of Ireland (IRE) and Aegon (AEG), all bought when the sentiment on the eurozone was more pessimistic. I am not selling these at their current valuations, but they have moved up nicely and I am not in a hurry to add to my European positions. If you don't own anything in this space, I would look to sell puts on bad news to back into these super-cheap stocks.

One interesting name that popped up is Republic Airway (RJET). The company is still talking about selling the Frontier Airlines division and focusing on the legacy regional airline business. The stock had popped when this plan was initially announced but has since pulled back; no one seems interested in Frontier at a decent price and it is highly unlikely that a financial buyer (such as private equity) will emerge anytime soon. Frontier has seen revenue and load factor increases recently, but these improvements have not been enough to flush out interested buyers. The company could spin off Frontier to shareholders, but that wouldn't raise the cash needed to support the legacy and easing business. Value is in the air at 30% of tangible book, but there are a lot of moving parts here. This is one that needs substantial homework before we dive in.

A lot of my current holdings are on the list. CommonWealth REIT (CWH) is still one of my favorite long-term real estate plays; the high-yielding stock trades at just 40% of tangible book value. SWS Group (SWS) is still cheap at just 50% of book value, and I am confident in management's ability to turn around the banking and financial services firm. Puerto Rican banking concern Popular (BPOP), one of my favorite long-shot banks, is cheap and 60% of tangible book value. I still hold my Japanese banks: Both Mitsubishi UFJ (MTU) and Mizuho (MFG) are well below book value.

One thing I see when reviewing all of these stocks -- even though they are super-cheap at current levels, they are well off their 52-week lows. They are cheap enough to buy, but you need to stay small and move slow. When buying super-cheap stocks it is still important to make Mr. Market work for you by being a scale buyer.

Now I have to get back to picking the Final Four. I am thinking Kentucky, Cincinnati, Carolina and Missouri. Before using my picks, keep in mind that I have bet the Orioles to make the playoffs every year since I was old enough to walk into a casino. Unlike picking stocks, my record with sports bets is a tad spotty.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Long CWH, SWS, BPOP, MFG, MTU, RBS, AEG and IRE

TAGS: Investing | U.S. Equity | Financial Services

More from Financial Services

Berkshire and Buffett Rightly Put Their Value Stamp of Approval on Citigroup

Brad Ginesin
May 17, 2022 10:01 AM EDT

The nod from the Oracle of Omaha's company could signal that it's finally the right time to buy the banking giant.

SoFi Technologies Is Primed for a Rebound

Bruce Kamich
May 16, 2022 8:50 AM EDT

Here's where the shares may be headed next.

Affirm's Results Impressed and Here's Why I Want a Piece of the Action

Stephen Guilfoyle
May 13, 2022 11:00 AM EDT

There are several reasons why the shares were trading higher.

Affirm's Bounce Fails to Impress Me

Bruce Kamich
May 13, 2022 8:45 AM EDT

Don't expect AFRM to rally for long or go very far.

Time to Toss COIN

Bruce Kamich
May 11, 2022 11:56 AM EDT

There's no way around it, Coinbase's charts look tarnished following its earnings miss. Let's see if there's a silver lining in this for traders ... or not.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 03:07 PM EDT PAUL PRICE

    Why is Wal-Mart Down Big Today?

    Besides its poor earnings report Wal-Mart (WMT) wa...
  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • 08:51 AM EDT PAUL PRICE

    Advice From the Future...

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login