We're halfway through 2021 and value continues to outperform growth year to date.
In large-caps, the Russell 1000 Value Index (up 16.98%) is outperforming the Russell 1000 Growth Index (up 14.86%) by 213 basis points. Within small-caps, the gap is even more pronounced as the Russell 2000 Value Index (up 27.33%) is ahead of the Russell 2000 Growth Index (up 9.47%) by 1,786 basis points. In micro-cap land, the Russell Microcap Value Index (up 36.7%) is outperforming the Russell Microcap Growth Index (up 21.71%) by 1,499 basis points. No doubt that value has a way to go over the past one- through 10-year periods to catch up to growth, but it's a start.
Nonetheless, identifying cheap individual names continues to present a challenge with so much of the market already bid up. However, you've got to continue to throw mud against the wall in search of ideas, because sooner or later some of it will stick.
To that end, I've pulled out of the archives an old stock screen that focuses on companies trading below tangible book value in order to generate some new ideas. Among its criteria:
- Minimum market cap $100 million
- Trading below tangible book value
- Trading at less than 15x trailing earnings
- No financials, REITs or utilities
It's a fairly short list of 19 names, and honestly, some are not worth mentioning. The problem with focusing on tangible book value is that you are bound to end up with companies that have seen better days and are not investment-worthy.
There are some familiar companies; they include construction name Tutor Perini (TPC) , which trades at 0.53x tangible book value, less than 7x trailing earnings, 6x next year's consensus estimates and 1.14x net current asset value. Tutor Perini is also a member of my 2021 Double Net Value Portfolio. TPC is one of those names that always seems cheap, garners little analyst coverage and is hamstrung to a certain extent by debt, which stood at $1.025 billion at the end of its latest quarter. Other familiar names (to me, but certainly not household names) include Biglari Holdings (BH) and Seneca Foods (SENEA) .
There are a couple new ideas (new to me, anyway), but keep in mind, this is the just the initial stage of evaluation.
Fonar Corp (FONR) makes and markets magnetic resonance imaging (MRI) scanners. FONR currently trades at 0.9x tangible book value and 12x trailing earnings. Fonar ended its latest quarter with $41 million, or around $6 a share, in cash and just $2.3 million in debt. FONR currently garners no analyst coverage.
Clearwater Paper Corp. (CLW) , which makes consumer tissue and paperboard, trades at 0.97x tangible book value and 12x next year's consensus earnings estimate (just three analysts cover the company). Clearwater shares are down 25% year to date and have been hurt by two consecutive earnings misses. Clearwater ended its latest quarter with $57 million in cash and $718 million in debt. Rising commodity costs are an issue here and may be weighing on the stock.
Slim pickings once again in yet another underbelly of value.
