I have spent a lot of time focused on banks the past week. I suppose that's only natural as I was in Dallas with bankers talking about bankers the first half of the week. Upon my return to Florida, I spent a good percentage of my time talking about what I talked to the bankers about earlier this week.
Much of the discussion was focused on how to grow assets and earnings in the current environment and who is doing a good job of growing. I want to ask the same question today, but to exclude the banks from the conversation and see who is growing in the current environment, then narrow the list down to those companies where we can buy the growth at a bargain price.
I searched for non-bank companies that have been able to grow book value at an above-average rate the past five years. I use book growth because in my mind it is the best measure of how real a company's reported growth is. If you have high earnings growth and bleed the profits away in capex, research and development and other investments that do not increase the net worth of the company, then you are not really growing, in my mind. Lots of folks argue the point until I point out that, among large-cap stocks, the highest book value growers include companies like Apple (AAPL), Alphabet (GOOGL), Oracle (ORCL), Amazon (AMZN) and MasterCard (MA). I then limited my choices to those that could be purchased below book value. (Apple and Alphabet are part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seeker portfolio.)
I was pleased to see one of my all-time favorite real estate companies on the list. I have talked at length about Brookfield Property Partners (BPY). I have no plans ever to sell this holding. Although the ownership structure is a little complicated with joint ventures, partnerships and minority holdings, Brookfield gives you one security to own that gives you exposure to a broad swath of the real estate markets. You own best-in-class, skyline-level office properties, part of a large portfolio of single-family homes, upscale shopping malls, industrial properties and multifamily housing. Brookfield has been able to grow book value by an average of 19% annually for the past five years. The stock is trading below book value and yields 4.66%. I own it and would use any weakness to buy more shares.
I am intrigued that Honda Motor (HMC) made the list. Honda shares have been pressured by their relationship with troubled airbag manufacturer Tanaka and the related lawsuits. That will abate over the next few years as Honda replaces them as an airbag supplier. A look back over the last decade shows that buying Honda shares when they slip below book value has been a winning strategy, and that may well be the case this time. Honda should benefit from strength in U.S. auto sales as well as non-Japan Asian markets. I don't advise relying on analyst expectations too much, but if Honda comes anywhere close to the projected five-year rate of 30% annual earnings growth, the stock could provide solid total returns from current levels. As a bonus, you collect a decent dividend yield along the way as the shares currently yield 2.74%.
Costamare (CMRE) is one of the more interesting companies on the list. The company owns a fleet of 72 container ships, and in a time when most shippers are singing the blues, they are delivering decent performance. Most of their ships are on long-term leases, insulating them somewhat from volatile and weak spot shipping rates
They are positioned to thrive under current conditions, with CFO Gregory Zikos saying in the last earnings release, "In a challenging market environment, we keep employing our vessels, having chartered in total nine ships opening during the first three months of the year. On the market, charter rates and asset values are at historically low levels as a result of weak demand. We believe that today's environment provides attractive opportunities and the potential to increase our shareholders' returns." The stock is priced at 70% of book value and the yield is over 12%, so the total return potential for long-term patient investors could be extraordinary.
Low-priced growth is hard to find in the current environment with a combination of high valuations and a low-growth economy making our search more difficult than in years past. There are some pockets of value priced growth, however, and patient, aggressive investors should be rewarded for owning those few names we can find.
