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Rupert Hargreaves
Rupert Hargreaves
Articles (1267)  | Author's Website |

3 Stocks Trading at a Discount to Tangible Book Value

These companies should be able to withstand the downturn

March 18, 2020 | About:

In light of recent market downturns, here are three stocks I recommend that are currently dealing at a deep discount to tangible book value.

Critical supplier

Cooper-Standard Holdings Inc (NYSE:CPS) is the first company I recommend in this article.

As a crucial supplier for the automotive industry, Cooper-Standard won't be able to escape the economic fallout of the coronavirus. However, the company's position in the supply chain should allow it to make a rapid recovery when things eventually return to normal.

Net gearing is relatively high. At the end of its last reported financial period, the company reported a net gearing ratio of 52%, although the firm's ratio of debt to assets is a more conservative 34%. However, in my opinion, despite lacking in balance sheet strength, it more than makes up for this risk in the valuation.

The stock is currently dealing at a price-to-tangible-book ratio of 0.3. That suggests an upside of 200% or more is on offer when confidence in the market returns.

As Benjamin Graham once said, there are no bad assets, just bad prices. At this level, it seems as if Cooper's price upside makes up for the weak balance sheet risk.

Fixed assets provide support

Another stock trading at a discount is homebuilder and land development company Taylor Morrison Home (NYSE:TMHC). This company has a solid balance sheet with a ratio of net debt to fixed assets of 31%.

The recent sell-off has sent the stock plunging to its lowest level in history (the company IPO'd in 2013). After this decline, the stock is trading at a price-to-tangible-book ratio of 0.5. It is also dealing at a price-earnings ratio of 3, but as we don't know the full impact impact the virus outbreak will have on the economy, it is difficult to rely on figures like price-earnings.

Still, from a long-term perspective, as long as Taylor Morrison can make it through the current economic slump, there will always be a demand for homes. This suggests that the company will be a good investment over the long term. Its strong balance sheet should provide stability through though hard times.

Diversified holding

The final company I'm going to look at in this article is BBX Capital (NYSE:BBX).

BBX is a diversified holding company, holding stakes in Bluegreen Corporation and Renin Holdings, LLC. It also has a real estate division. These are involved in the ownership and management of real estate and real estate development projects, as well as investments in real estate joint ventures.

According to the company's latest financial statements, these businesses were worth $6 per share at the end of 2019. At the current price of $1.60 per share, the market is implying they're worth only 30% of this value today. On a tangible asset basis, the stock is trading at a price-to-tangible-book ratio of 0.3.

With just $392 million of net debt compared to $1.7 billion of net fixed assets at the end of the year, BBX looks as if it has financial headroom to whether the current economic uncertainty.

Over the past 10 years, the company has created a tremendous amount of wealth for shareholders. When the storm clouds finally lift, it's highly likely that the firm will continue to do so.

That suggests that now could be an excellent time for investors to make the most of this opportunity. With a potential upside of more than 200% on offer from current levels, it certainly appears as if the reward is worth the risk of investing here.

Disclosure: The author owns no share mentioned.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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