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Are you familiar with the dynamic duo of Fama and French?
No, they didn't sing "Private Eyes" -- that was Hall and Oates. And no, they didn't star in "Tommy Boy" -- that was Farley and Spade.
The names Eugene Fama and Kenneth French may not come up in most dinner conversations, but the two have done some of the most compelling academic research on stocks that I've read. In contrast to the consensus among academics, they've proposed that there's more to stock returns than volatility.
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In research conducted over various periods and across multiple locations, Fama and French determined that stocks characterized as "value stocks" have consistently outperformed nonvalue stocks.
Today, I've rounded up five value stocks trading at less than 1.5 times their tangible book value. To focus on high-quality stocks, I've cross-referenced these against ratings from our MSN CAPS community of more than 105,000 investors.
| Company | Sector | Tangible book value multiple | Change to share price over past 12 months | CAPS rating (out of 5) |
|---|---|---|---|---|
Uranium processing | 0.5 | -72.2% | ***** | |
Insurance | 0.7 | -8.9% | ***** | |
Aircraft leasing | 1.1 | -57.3% | **** | |
Electric utilities | 1.1 | -8.7% | **** | |
Electric utilities | 1.5 | -11.3% | **** |
Though the CAPS community obviously likes these stocks, I would advise against investing in any of these companies on the basis of one metric alone.
So I thought I'd dig in a little deeper into the story at Aircastle (AYR, news, msgs), a Connecticut company with a fleet of jet aircraft it leases to passenger and cargo airlines.
High operating costs, soaring fuel prices and cutthroat competition are making it hard for major airline operators such as Continental Airlines (CAL, news, msgs) and Delta Air Lines (DAL, news, msgs) to make money. Mergers -- such as the one pending between Delta and Northwest Airlines (NWA, news, msgs) -- seem to be one of the few options for fighting the pain, and nobody knows how many deals the Department of Justice will approve.
But with air travel now an indispensable mode of transportation, somebody has to be making money, right? On CAPS, many investors think Aircastle is a good bet. The company, partially owned by Fortress Investment Group (FIG, news, msgs), leases its planes on a long-term basis to airlines all over the world.
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More recently, financing has started to look more promising, and the stock has rallied. Despite the run-up, though, the stock still trades at a low price-to-earnings ratio of about 8 and carries a hefty 6.3% dividend yield.
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CAPS All-Star "randyriv" has been a fan of Aircastle since mid-2007. "In order to both meet increased demand and replace existing supply, the airline industry will become increasingly dependent upon the use of leased aircraft," the All-Star wrote. "This puts companies like Aircastle at the forefront of an enormous growth opportunity moving forward. Combine that growth with a 6% dividend, and you have a winner, in my book!"
So, are these stocks values or value traps? Log on to CAPS and let us know what you think.
This article was reported and written by Matt Koppenheffer for The Motley Fool. At the time of publication, he owned none of the stocks mentioned.
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