Major Companies Trading Close To Book Value, Or Under (BAC, BG, C, GLW, HPQ, MS, SEE)

The stock market may have bounced after six straight weeks of selling, but things were getting bad enough that even the solid market leaders like Apple were being taken to the woodshed.  24/7 Wall St. routinely looks for value stocks and one of the key metrics that comes up is the share price comparison to book value.  This group has low price-to-book values in alphabetical order of their ticker symbols: Bank of America Corporation (NYSE: BAC); Bunge Limited (NYSE: BG); Citigroup, Inc. (NYSE: C); (NYSE: GLW); (NYSE: HPQ); Morgan Stanley (NYSE: MS); and, Sealed Air Corporation (NYSE: SEE).

When we look for bargain basement price-to-book value, there are many more factors to consider.  Analysts actually expect each of these companies to realize positive earnings growth next year, with earnings growth estimates ranging from 5.5% to more than 57%.  Each of these companies have very low implied forward P/E ratios, which actually fall between 6.4 to 11.4.  We also only consider liquid shares as well and each of these have an average daily volume exceeding one million shares.  Five of the seven companies trade more than 10 million shares daily.  These are some of the same criteria which large value investors look for.  Except where otherwise noted, the source for all performance and financial data is Finviz.com.

There are a few more considerations here.  Book value is retroactive and we are late in the quarter.  Admittedly, there are more considerations than a price against a stated equity value.  There is also often a difference between book value screens and what true vultures look at in a tangible book value after you strip out goodwill and intangible assets.  This was the first of two or three book value reviews.  While discounted companies are often buyout targets for other companies and for private equity, these companies are in most cases probably too large to be considered buyout targets. Most companies trade under book value for a reason, but some of these companies do not have troubles that caused the company to look cheap.

Bank of America Corporation (NYSE: BAC) trades at close to half its book value, or at least so the screen value denotes. Our take is a far less ‘discount” as we previously noted, “Some still-bullish investors may heed that $13.21 book value as a safety net, but the bears may argue that the figure should act more like a ceiling.”  Also, how does one truly value a bank in today’s climate?  You have to trust what management states as book value. Its forward PE of 6.4 also outshines the other six companies described here.  Does America’s largest bank by deposits truly expect to live up to those estimates ahead?  Your guess is as good as ours.

While currently undergoing earnings challenges, analysts look for Bank of America to post more than 55% earnings growth next year.  In Tuesday trading, Bank of America’s shares closed at $10.83, up 2.17%, and it has a market cap of more than $100 billion.  Its 52-week price range is $10.40 to $16.05.

Bunge Limited (NYSE: BG) sports a price to book value of 0.77.  This world-wide basic foods company offers a forward PE less than 10.5.  Bunge’s shares closed at $66.95 in Tuesday trading, up 2.34%.  Its 52-week trading range is $45.18 to $75.89.  With a value of nearly $10 billion, this agriculture and food giant was surprising to see trading with a market cap under its $11.5 billion in net tangible assets.  It was surprising to see the soy bean giant in this group, but perhaps it is worth noting that Bunge shares traded between $100 and $120 back as recently as early 2008 before the recession kicked into high-speed.

Citigroup, Inc. (NYSE: C) is another bank which is easy to argue about true book value against tangible book value.  Still, it trades at about two-thirds of its book value in our screen.   with a price to book ratio of 0.67, places among the best companies in this lineup.  The financial giant’s forward PE is 7.43.  In the aftermath of the world-wide financial crisis, Citigroup is realizing year-over-year earnings growth of 146% this year, with 27.5% expected next year. Will it live up to those expectations?  Again, your guess is as good as ours.  In Tuesday trading, Citigroup’s shares closed at $39.31, up 3.01%.  Its 52-week price range is $36.19 to $51.49.  At its latest earnings report, Citigroup gave a book value per share of $5.85 with a tangible book value per share of about $4.69; now listed as $58.50 and $46.90 after its reverse split.

Corning Inc. (NYSE: GLW) offers a price to book value of 1.36.  Only in a lineup like this one would such a number seem unremarkable.  Its forward PE is less than 7.9.  Analysts expect Corning to post 75% earnings growth this year and 9.3% next year.  In Tuesday trading, Corning’s shares closed at $17.66, down 1.45%.  Its 52-week trading range is $15.30 to $23.32.  With a market cap of over $27 billion, Corning actually boasts a whopping $6.3 billion in cash and short-term investments, it also lists another $4.5 billion in long-term investments, and has a very manageable debt load. Corning was also voted as one of our “Most Innovative Companies in America” in 2010.

Hewlett-Packard Company (NYSE: HPQ) offers a price to book value of 1.81, remarkably the highest P/B ratio in this lineup.  The computer, printing, and IT giant is a troubled company and that is the only reason it even shows up as “value” with a forward PE less than 7.  That may be the cheapest in the group of “value” companies.  Analysts look for Hewlett-Packard to grow year-over-year earnings by 17.5% this year and by almost 7% next year.  With new management, a lost direction, and with Apple taking the tech world over we are not as confident in the forward targets.  In Tuesday trading, Hewlett-Packard’s shares closed at $35.30, up 0.89%.  Its 52-week price range is $33.95 to $49.13.  H-P claims over $12.7 billion in cash and lists another $11.3 billion in long-term investments against a $73 billion market capitalization.

Morgan Stanley (NYSE: MS) places among the top companies in this lineup with a price to book value of 0.6.  Yes, caveats are here too.  One report recently even pointed out that it could just liquidate and be worth more than its share price today.  As it was a “too big to fail” institution, don’t hold your breath on that front.  Its forward PE is under 8.  Analysts expect the investment house to achieve an eye-catching earnings growth; more than 380% this year and almost 55% next year.  Trusting those estimates is something we will leave to the mystics.  In Tuesday trading, Morgan Stanley’s shares closed at $22.76, up 1.65%.  Its 52-week trading range is $21.88 to $30.98.  Its market capitalization is over $35 billion.

Sealed Air Corporation (NYSE: SEE) offers a price to book value of close to 1.5.  Its forward PE is near 11.4, modest by most standards but the highest in this lineup.  Analysts look for the packaging and container company to grow year-over-year earnings by 6.5% this year and by almost 17% next year.  The company’s shares closed at $22.96 in Tuesday trading, up 0.26%.  Its 52-week price range is $18.87 to $28.49.

What matters about Sealed Air is that this screen is going to be extremely difficult to compare looking forward due to its deal to acquire cleaning-products company Diversey for close to $3 billion in cash and stock, valued at $4.3 billion after the assumption of debt, when the company itself has a market cap of about $3.8 billion.  That is one of the reasons we featured this in the list is to highlight the conundrum.  Management has stated that this will add to both earnings and cash flow.

As always and as stated, your opinion of true book value may vary considerably from what management (and an auditor) considers to be a fair book value.  When Zacks runs its screens against book value, it generally allows for up to 3-times book value.  Goodwill and intangible assets often skew this data considerably.  Stay tuned for more “value” picks throughout the week.

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Jon C. Ogg and Jim Berdou