BALTIMORE (Stockpickr) -- There just aren't any more stock bargains out there -- at least that's the complaint that deep value investors have been lobbing at the market in recent months.
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Back in May, Baupost Group, the $27 billion hedge fund firm run by value investor Seth Klarman, said in a client letter that it may return client capital at year-end for lack of opportunities. Since then, value seekers have been wringing their hands over the ballooning price tags on the stock market.
But there are still some bargains to be had right now -- it just takes a bit more nimbleness than a $27 billion portfolio can afford.
Even though equity prices have moved substantially on an absolute basis, valuations aren't astronomical on a relative basis. At least not yet. In my view, an expanding monetary base has a lot more to do with the equity rally from 2008 to now than ebullient buyers do.
Translation: There are still buying opportunities in this market. To find them, we're tearing the lid off of Wall Street's "bargain bin" today.
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In our search, we're focusing in on stocks that currently trade near book value per share -- a number that (generally) means that a company costs less to buy than the value of the stuff it owns.
Often, stocks trade under book value for good reasons. It could mean, for example, that a company has a major black cloud ready to disrupt its businesses, or that its liabilities are under-represented on its balance sheet. To combat those value traps, we're focusing on larger bargains with consistent profitability, and assets that are primarily financed with equity rather than debt.
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Without further ado, here's a look at five of the stocks from Wall Street's bargain bin.
VimpelCom
Up first is VimpelCom (VIP), one of the largest integrated telecom companies in the world. VimpelCom casts a wide net: The firm provides wireless, fixed-line and broadband Internet services to customers across Russia and most of the former Soviet Republics, as well as a half dozen countries in Asia and Africa, and limited exposure in Italy and Canada. Currently, VIP trades for just 1.4 times the value of its assets.
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VimpelCom's global exposure is its biggest positive right now. The firm operates in some of the most attractive emerging markets on the globe, and a rising tide in demand for communications services should flow into bigger profits. That doesn't mean that the road ahead for VIP is easy. The firm does face stiff competition, a capital-intense business and a complex operating structure. But recent efforts to simplify operations and improve efficiency have been palpable. As margins get fatter, so too should VIP's share price.
VimpelCom has been pursuing transformational acquisitions in recent years, growing its business at the expense of operational clarity. But now that management is focusing on efficient operations, the benefits of those mergers are starting to shine through. With more than 780 million people in across its coverage areas, there's plenty of clear runway ahead for VIP. It'll just take a rebound in overseas equity markets before that shows up in shares.
Corning
Calling it a "glassmaker" doesn't really do Corning (GLW) justice. In fact, the firm owns some of the most advanced glass technology in the business, providing companies such as Apple (AAPL) with its patented Gorilla Glass for iPhone and iPad screens and using its expertise in manufacturing larger, thinner glass panels for other display makers.
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Rivals can't easily reproduce Corning's technical expertise and scale. Only two other firms are able to produce comparable glass, combining with GLW to control 90% of the market for display surfaces. While Corning operates in a handful of businesses, glass used in displays (for everything from screens to internal components) makes more than 40% of revenue. Overall growth in how fast consumers are churning their mobile devices should be a shot in the arm for Corning, especially as the firm works at full capacity to keep up with demand for Gorilla Glass. That means that there's enough demand in the market place for GLW to quietly ramp up that capacity.
Financially, Corning is in stellar shape. The firm currently sports $7.3 billion in net cash and investments, enough to pay for a full third of the firm's market capitalization. All told, GLW trades at parity with book value, implying a big bargain in shares of GLW right now.
Investors who buy at these levels can also collect a 2.7% dividend yield for their trouble.
Xerox
2013 has been a blockbuster year for Xerox (XRX) -- shares of the $12.7 billion firm have rallied more than 51% this year, on the heels of solid execution. This isn't your dad's Xerox, after all. But despite the ascent in shares, this stock still trades for a price to book ratio of 1.06.
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Xerox staked its claim in consumers' minds by grabbing the dominant share of the copy machine business in the last four decades -- enough so to make "Xerox" a verb for copying documents (much to the chagrin of the firm's IP lawyers). But that's not Xerox's business anymore. In fact, the firm has found success in making its business more boring and less consumer-facing. Xerox has taken its resources from black and white printing tech and moved it over to document solutions areas where its R&D can actually build a better mousetrap. At the same time, services are becoming a much more important part of Xerox's business.
Make no mistake, boring isn't bad for business. Xerox's current focus has widened margins (and just about every other financial metric in the process). The firm still earns a material chunk of its sales through office printers and copiers. But as time progresses, building low-moat office equipment should continue to become a smaller and smaller part of XRX's total revenue. In the meantime, shares look cheap right now.
Molson Coors Brewing
Investors should be knocking back a cold one for Molson Coors Brewing (TAP). After all, of the big three brewers, TAP has turned out the strongest performance in 2013. But in spite of the upside in the $9 billion brewer, shares still look cheap from a book value basis. With a price-to-book ratio of 1.2, TAP is valued at a fraction of where its peers sit.
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Molson Coors owns a very attractive portfolio of brands that includes (among many, many others) the eponymous Molson and Coors as well as Blue Moon, Keystone, and Miller Lite (the latter through a joint venture with SABMiller (SBMRY: Pink Sheets) here in the U.S.). With that portfolio, TAP controls a third of the U.S. beer market, as well as a full 40% of Canada's and 20% of the U.K. market. Because customers are sticky with their beer brand preferences, TAP's huge scale translates into a huge advantage.
Craft beer has been the single fastest-growing category of the alcoholic beverage business for years now. And TAP has been making its mark too, with offerings such as Batch 19. No, craft beer isn't going to supplant the firm's mass-market offerings, but it has the potential to provide top-line growth and deeper margins.
TAP investors should have eyes on the Fed right now. With considerable international operations and dollar-denominated financial reporting, a weakening dollar in late 2013 should provide a welcome earnings boost.
Scana
Last, but certainly not least, is Scana Corporation (SCG), a $6.6 billion South Carolina-based power and gas utility. Scana serves power and natural gas to around 1.5 million customers spread across three Southern states -- it's also a major non-regulated infrastructure owner, with a big power generation arm, transmission assets and a fiber optic communication network. But with shares trading for just 1.47 times book value, shares look bargain-priced.
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That price-to-book ratio may seem high compared to the other names on this list, but it's important to remember that assets show up on Scana's balance sheet at far less than their replacement cost. After all, depreciation on capital-intense businesses is determined by accounting measures, not practical ones. Right now, a quarter of the firm's power comes from hydroelectric or nuclear generators, providing very low-cost energy that's challenging to replicate from a regulatory and geographic perspective. And Scana is investing in more nuclear projects in the years ahead.
Infrastructure investments aren't solely borne by Scana's shareholders -- the firm has been successful in getting attractive rate structures passed by legislators as well. That incentive to convert more power to high fixed-cost, low ongoing cost sources should benefit SCG in the long-term. And like other power utilities, Scana boasts a hefty dividend payout that stands at 4.3%.
Now looks like a good time to grab a bargain in this mid-cap utility stock.
To see these value-centric names in action, check out the Bargain Bin Buys Fall 2013 portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to
TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.Follow Jonas on Twitter @JonasElmerraji
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