These three stocks are cheap when viewed from Benjamin Graham’s investment methodology of sticking with those names which have low price-earnings ratios, trade near or below book value with low debt and pay dividends. He liked to see a decent record of earnings as well, which each of these has.
This type of value investing takes the long-term approach, a key difference from the growth stock thinking that views the next quarter or two as most crucial. It might take longer than that for a “cheap” stock to work out, but Professor Graham was willing to wait a while if enough value could be found.
With that in mind, here are three that look undervalued.
City Office REIT
City Office REIT Inc. (CIO, Financial)buys and operates “high quality office properties in Southern and Western states,” according to the company's website. It owns buildings in Dallas, Denver, Orlando, Florida, Phoenix, Portland, Oregon and other cities in those regions. The stock trades with a price-to-funds from operations ratio of 12 – that’s the price-earnings equivalent used by analysts for real estate investment trusts. City Office REIT is available for purchase at a 2% discount from its book value.
The price-sales ratio is 4.47 and the price-to-free cash flow metric is 33.61.
Earnings this year are up by 1,733% and the five-year earnings per share growth rate is 143.90%. Wall Street does not expect that kind of extraordinary growth to continue at that pace, but expectations are positive. Long-term debt exceeds shareholder equity. City Office REIT pays a dividend that yields 4.71%.
The GuruFocus finanicals summary for City Office finds four good signs, three medium warning signs and two severe warning signs.
TIM
TIM S.A. (TIMB, Financial) is a Brazilian telecommunications company with a price-earnings ratio of 10 and is now trading at 1.23 times its book value. The price-sales ratio is a low 1.75 and the price-to-free cash flow ratio is 8.44. Shareholder equity is greater than long-term debt and the current ratio is 1.50.
Investors receive a 39 cents per share quarterly dividend for an annualized yield of 3.08%.
This year’s earnings increased by 60% and the company’s past five-year record for earnings per share growth is 31.60%.
The GuruFocus summary of TIM’s financials shows three good signs, four medium warning signs and two severe warning signs.
Unum Group
Unum Group (UNM, Financial) is in the life insurance business with headquarters in Chattanooga, Tennessee and operations worldwide. The stock is trading at about half its book value and with a price-earnings ratio of 6.76. Earnings per share this year grew at just 3.40%. The past five-year earnings per share increased at just 0.40%.
The price-sales ratio is an extraordinarily low 0.48 and the price-to-free cash flow ratio sits at 5.58. Long-term debt is much less than shareholder equity. Unum’s average daily volume on the New York Stock Exchange is 2.43 million shares.
Investors receive a 4.36% dividend yield.
The financials summary done by GuruFocus shows one good sign and three medium warning signs.
