Stocks that are cheap relative to book value appeal to me a great deal.
What’s book value? It’s basically a company’s net worth –its assets minus its liabilities. The figure is often expressed per share of common stock. General Motors Co. (GM), for example, has a book value of $70.9 billion, which works out to $64.49 a share.
I look for stocks that sell for less than two times book value, and am especially fond of ones that sell “below book.” As it happens, General Motors is one, selling (as of November 6) for about $57 a share, or ten bucks less than book.
But General Motors has more debt than I want to see, so I won’t recommend it today, even though I like it mildly. Here are four stocks selling below book that I do recommend.
Citizens Financial
Citizens Financial Group Inc. (CFG) is the parent of Citizens Bank. Headquartered in Providence, Rhode Island, it has more than 1,000 branches in 14 states, mostly in the Northeast.
Royal Bank of Scotland owned Citizens for a quarter of a century, but the company has been independent since 2015. Since then, it has grown its revenue at close to a 9% annual clip, and earnings faster than revenue.
Like many banks, citizens saw earnings fall in the past year. An inverted yield curve (where short-term rates are higher than long-term ones) is poisonous for banks. But the curve recently straightened itself out, so I think banks have a more pleasant environment ahead.
G-III Apparel
G-III Apparel Group Ltd (GIII) has accelerated its earnings growth in recent years, even though its sales have been fairly stable. The company, based in New York City, makes clothing under the brands Calvin Klein, DKNY, Donna Karan, Karl Lagerfeld and Tommy Hilfiger.
It also produces private-label clothing and owns Wilsons Leather.
The stock, which has made little progress in the past five years, is inexpensive at 0.9 times book value, 0.46 times revenue, and less than eight time earnings.
Kelly Services
Based in Troy, Michigan, Kelly Services Inc. (KELYA) is a staffing company that provides businesses with both temporary and permanent workers. The company doesn’t give a breakdown, but some outsiders estimate that permanent placements account for about 30% of Kelly’s revenue.
Kelly has shown a profit in eight of the past ten years. Just as you would expect, it’s economically sensitive: It posted big losses in the Great Recession years of 2008-2009.
The stock is quite cheap by most measures. It sells for 0.16 times revenue and 0.6 times book value. The stock price is 16 times recent earnings but only seven times the earnings analysts foresee for the coming year.
Molson Coors
Molson Coors Beverage Co. (TAP) has one big problem: People are drinking less beer than they used to. It also has medium-sized problems: Costs are rising, but consumers are balking at price hikes.
Despite those headaches, the company, based in Golden, Colorado, managed an 8% sales gain in the past four quarters, and profits grew faster than sales. Its brands include Miller, Coors, Blue Moon and Carling. It also sells hard seltzer in partnership with other companies.
This is a speculative pick. Molson posted losses in two of the past four years, and it has predicted that 2024 sales will be down about 1% from 2023. Of 21 analysts who follow the stock, only four rate it a “buy.”
Sure, this company has problems. But with the stock selling below book value and at about 10 times earnings, I think the risk/reward ratio looks favorable.
The Record
In 24 years, my recommendations for stocks that look cheap based on book value have returned an average of 19.6% per year.
That compares very well to 13.0% for the Standard & Poor’s 500 Total Return Index over the same 24 periods.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
Of my 24 columns, 17 have been profitable and 16 have beaten the S&P 500.
Last year’s picks were my best in 15 years. They rose 53.3%, propelled by gains of 99% in Select Water Solutions Inc. (WTTR), 88% in Gates Industrial Corp. (GTES) and 79% in Capital One Financial Corp. (COF).
The S&P 500 was up 37.3%, including dividends, from November 13, 2023 through November 7, 2024.
Detracting from performance were a subdued gain of 3% in Kraft Heinz Co. (KHC) and a loss of 3% in Topgolf Callaway Brands Corp. (MODG).
Disclosure: I don’t own the stocks discussed today personally or for clients.