I have spent a lot of time in the past few weeks talking about findings and conclusions based on the Value Line Research Service. I have often said that if I could only have one service this would be the one. That statement is true, but fortunately, I do not have to rely on just one service. I am also a big fan of the research put out by Standard and Poor's Equity Research. The service uses a variety of fundamental factors to derive a rating of 1-to-4 stocks. Stocks with the two highest four- and five-star rankings are expected to outperform the overall stock market. Since Standard and Poor's does not rely as heavily on momentum as Value Line does, it gives me another perspective when searching for ideas.
I sat down this morning and ran a screen for stocks that trade below book value and receive one of the two highest rankings form the service. The most obvious finding is that I should run this screen a lot more often. The screen results bear a strong resemblance to my portfolio. The one five-star cheap stock is one of my favorites right now. I own Kelly Services (KELYA), the professional staffing and temporary personnel company and think the stock is too cheap not to own. It has moved up a little from my original purchase price but it is still very cheap on a book value basis.
There are plenty of picks among the dour star selections as well. Kite Realty Group (KRG) has performed well for us but the shopping center REIT is still well below book value. AEGON (AEG) is still one of the cheapest stocks on the planet and remains a buy, according to the service. One of my favorite larger regionals of the past few years, Key Corp. (KEY) is also on the list. So is Nabors (NBR), one of my oil and gas picks. Apparently, many of the same factors I use are components of the S&P model.
In addition, the list includes several interesting stocks that I had not considered. Although I have exposure to the aircraft leasing business via my holdings of FLY Leasing (FLY) AerCap Holdings (AER) appears to be a compelling bargain worth considering. The global aviation fleet is aging and Aercap has a fairly young portfolio of aircraft available for leasing. The company has substantial exposure to the European and Asian markets and could see strong profit growth as those markets rebound over the next several years. The shares currently trade at about 90% of book and if they should slip closer to the 80% level this stock could be a compelling bargain.
Gulfmark Offshore (GLF) provides marine transportation services to the global oil and gas industry. The biggest markets are the North Sea, Southeast Asia and the Americas. The company is making a push to deploy more assets in the higher growth Latin America markets and is looking to offer more services to the deep sea drilling rigs. Two of the major deep water drilling firms said earlier this week that their market should high levels of activity for the next few years. It is also anticipated that permit and drilling operation in the Gulf of Mexico should continue to grow as the region recovers from the oil spill damage and restrictions. Offshore Supply Vessels should see bit the pace and price of delivering supplies to rigs around the world increase at a fast pace and Gulfmark will benefit. The stock trades around 90% of tangible book value and is near 52-week lows. Again, on any additional weakness I would be a buyer of the stock.
This next idea comes with a huge caveat. I have never really done very well with my own choices in this sector. However, shipping stock s are extraordinarily cheap and one my favorite distressed investors has been buying in the space. Billionaire investor Wilbur Ross has committed major dollars to shipping interests, particularly tankers and that's the business of Tsakos Energy Navigation (TNP). The company owns 51 oil and refined product tankers and is one of the largest seaborne petroleum product shippers in the world. The also have exposure to the fast growing LNG business. The shares are very cheap, trading at just 30% of tangible book value, and right now, the shares yield over 12%. In addition to Ross, we have seen private equity firms enter the business -- both Blackstone (BX) and Apollo (APO) bought product tankers in the last year. I have no faith in my own ability to pick shipping stocks, but with a second-party verification from Standard & Poor's, I will probably hold my nose, close my eyes and take a position in the stock in the next few days. The shares, and the whole industry, are just too cheap to pass up.
Using Standard & Poor's STARS (STock Appreciation Ranking System), along with my own criteria has provided some solid ideas over the years. This time is no different as I have found several stocks worth further exploration.
