Are you familiar with the dynamic duo of Fama and French?
No, they didn't star in "Baby Mama" -- that was Fey and Poehler. And they didn't sing "Ebony and Ivory" -- that was McCartney and Wonder.
While the names Eugene Fama and Kenneth French may not come up in most dinner conversations, the two have done very interesting academic research on stocks. In contrast to the consensus among academics, they've proposed that there's more to stock returns than volatility.
In research conducted over various periods and across multiple geographic locations, Fama and French determined that stocks characterized as "value stocks" consistently outperform nonvalue stocks.
To find stocks trading at less than 2 times their book value, I used the stock-screening tool designed for the MSN CAPS community of more than 125,000 investors. (You can see the screen's recent results here.) I refined the list by eliminating those companies rated three stars or lower by CAPS members, who rate stocks from one star (least likely to outperform the broader market) to five stars (most likely to shine).
Here's a partial list of the keepers:
| Company | Sector | Book value multiple | 1-year change | CAPS rating |
|---|---|---|---|---|
Steel production | 0.5 | -83% | **** | |
Diversified investments | 0.5 | -74% | ***** | |
Oil-field services | 1.3 | -57% | ***** | |
Gold | 1.6 | -45% | **** | |
Semiconductors | 1.8 | -60% | **** |
Had I run this screen in early 2004, Intuitive Surgical (ISRG, news, msgs) surely would have made this list of stocks with book value multiples of 2 or less. Shares in the maker of medical equipment are up 390% over the past five years; the Standard & Poor's 500 Index ($INX) is down 39% since this date five years ago.
While we can't expect the companies on today's list to match the performance of Intuitive Surgical, we can assume that there's solid value here, given the four- and five-star ratings these stocks received from the CAPS community.
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Embracing change
When a company wants to go public, there aren't too many games in town. And NYSE Euronext (NYX, news, msgs) is the largest.Sure, it may seem strange talking about public company listings right now, given that Mead Johnson Nutrition (MJN, news, msgs) is the only initial public offering so far in 2009. But there will come a time, believe it or not, when the global economy turns around and companies once again start thinking about listing on public exchanges.
In the meantime, NYSE continues to collect fees from traders and listing fees from the companies whose shares are traded on its exchanges.
It's no secret that NYSE faces stiff competition from the Nasdaq electronic trading market, owned by Nasdaq OMX, as well as from derivatives-focused exchanges like CME Group (CME, news, msgs). And it's not going to shock anyone when I say that the exchange game is changing, and changing fast. While this does pose some risk to NYSE, it's not as if the company hasn't already faced the need for change -- it traces its roots all the way back to 1792, and we can agree there's been plenty of change since then.
The Wall Street company certainly seems to be embracing change: Over the past few years, it has expanded in multiple directions, picking up Archipelago (now NYSE Arca) and the American Stock Exchange, and merging with Euronext.
But will it beat the market? NYSE Euronext is among the top-of-the-heap five-star stocks in the CAPS community, with 2,426 outperform ratings against just 83 underperform ratings.
CAPS members have listed several reasons to like the stock, including its low price, a 7.1% dividend yield and the company's strong brand.
Stock Chart (Year)
NYSE Euronext
"Great moat, great business model . . . increased volatility of late probably means more transactions . . . good times in the future means more investor participation (equals more transactions)," stallis wrote. "I shied away from the exchanges in the past because I felt it would take too long for them to grow into their multiples, but it's difficult not to like NYSE Euronext at the current price."
So what do you think? Are the stocks in this group values, or value traps? Log onto CAPS and let us know what you think.
Your opinion makes a difference. The ratings and comments from CAPS members aren't always on the money, but there's value in a system that incorporates the knowledge, information and skills of thousands of participants.
As wisdom-of-the-crowd experiments show, collective estimates are often superior to the estimates of most individuals.
This article was reported and written by Matt Koppenheffer for The Motley Fool.
