The number of stocks that meet Benjamin Graham's deep-value investment criteria has increased after the recent stock market volatility. In these times of uncertainty, buying these deeply undervalued securities could be a way to reduce risk and enhance long term returns.
With that in mind, here are four stock picks that look deeply undervalued after recent declines. Please note, this is only meant to be a starting point for further research. I've only selected these companies based on their financial metrics. I have not conducted any deep due diligence or rigorous fundamental analysis on these opportunities . I recommend that any investor who wants to take a position do so before buying.
Embraer
Embraer SA (ERJ, Financial) is one of the largest deep-value stocks that I found. The company, which manufactures jets with 70 to 130 seats for the commercial and defense sectors, has seen the value of its shares fall by 50% this year.
Following this decline, the stock is now trading at a price-book ratio of 0.4 and a price-to-tangible-book ratio of 0.6. It lost money in 2018 and is expected to lose money in 2019 and 2020 as well.
However, Embraer has a robust balance sheet. At the end of its last financial period, the company had a net gearing ratio of -29%. This suggests that it has the financial flexibility to survive the Covid-19 crisis. In the five years to the end of 2018, the company earned an average of $124 million in net profit per annum.
VOXX International
VOXX International Corp. (VOXX, Financial) has seen the value of its shares rise by around 20% since the beginning of the year. Despite this growth, the international manufacturer of parts for the automotive business is still trading at a discount to book value.
The stock currently has a price-book ratio of 0.4 and a price-to-tangible-book ratio of 0.6. At the end of the company's fiscal 2020, it had total current assets of $218 million and total liabilities of $65 million. This gives an estimated net net value of $153 million compared to Voxx's current market cap of $139 million.
It has a positive cash balance on the balance sheet, which stood at $26 million at the end of 2020. While the company has not been profitable for the past six years, it has earned positive free cash flow in three of the past six years. This has helped support the business.
Flexsteel Industries
A manufacturer, importer, marketer and distributor of residential and commercial upholstered and wood furniture products, Flexsteel Industries Inc. (FLXS, Financial) started losing money in 2019. Before that, the business earned an average of $20.6 million per annum in net profit between 2014 and 2018. This profit and corresponding free cash flow helped the company build a cash balance worth just under $48 million at the end of its last financial period.
At the end of the three months ended on March 31, the company had total current assets of $187 million compared to total liabilities of $74 million, giving an estimated net net value of $133 million compared to the current market value of $94 million. Overall, the company is trading at a price-book ratio of 0.5.
Houston Wire & Cable
The fourth and final company I'm going to take a look at in this article is Houston Wire & Cable Co. (HWCC, Financial), a supplier and distributor of wire and cable. Houston Wire % Cable's business appears to be relatively stable. Revenues have stayed around the $390 million mark for the past six years.
The company ended the three months through March 31 with current assets of $174 million and total liabilities of $132 million, giving a net net value of $42 million. The current market capitalization at the time of writing is $43 million.
Disclosure: The author owns no stocks mentioned.
Read more here:
- Young Warren Buffett on Conservative Investing
- Learning From Buffett's Early Experience With Berkshire Hathaway
- Seth Klarman on Relative Value and Relative Performance​
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