MetLife and Oasis Petroleum sell below book value

What do MetLife, Kelly Services and Oasis Petroleum have in common?

Each is selling below book value.

Book value is a company’s net worth (assets minus liabilities), usually expressed as a number per share outstanding. Buying stocks below book value is a classic bargain hunter strategy. Here are five titles below that I like.

MetLife

The largest US company currently selling below book value is MetLife Inc. (NYSE:MET), a major life insurance company. Its market value is around $45 billion. Its book value is about $52 billion and its annual revenue is about $68 billion.

Investing the float – the money that comes in as premiums and hasn’t yet been paid out in claims – is critical for insurers. Investors have soured on insurers because, with low interest rates on relatively safe bonds, they are not earning as much investment income as before.

To that, I say yes, but $17 billion in net investment income (last year’s figure) isn’t bad. The stock trades at seven times earnings and 0.68 times book value.

Kelly

Kelly Services Inc. (NASDAQ: KELYA) is one of the leading temporary help companies in the United States. It has been profitable in 13 of the last 15 years – all of which were marked by the recession in 2008-09.

Kelly reported strong results for its June quarter, but only an average September quarter. The stock, at around $22, is trading for just 0.70 times the pound. Wall Street has virtually abandoned coverage.

The company has little debt and its profit margin has increased recently.

Oasis

Oasis Petroleum Inc. (NYSE: OAS) of Houston, Texas is particularly cheap at 0.26 times the pound. It drills for oil and gas primarily in North Dakota, but also in Montana and Texas.

Five or six years ago, Oasis sometimes traded above $50. Now, in the fifth year of a slump for the energy industry, it languishes at $3.10.

Of 32 Wall Street analysts who cover Oasis, 22 rate it a “buy” and 10 call it a “hold.” Admitting that holding ratings are often “sell” ratings in disguise, this is still a surprisingly strong analyst profile for a company that is an industry underdog.

I like that Oasis managed to reduce its debt, while increasing its production. The stock should be viewed as speculative as the company has posted losses in three of the past four years.

Greenbrier

Greenbrier Cos. (NYSE:GBX), based in Lake Oswego, Oregon, manufactures and leases railroad cars. He had been number two in the field behind Trinity Industries (NYSE: TRN). Now, having acquired rival American Railcar, it is about equal in size to Trinity.

For shippers, railroads often function as fleet managers, moving the right number of cars to the right place, preferably at the right time. While railcar manufacturing is very capital intensive, leasing and fleet management activities are not.

Greenbrier shares are trading at 0.87 times book value.

sims

As speculation, I like Sims Metal Management Inc. (SMSFY), a metal recycler based in Rye, New York, which does business around the world, particularly in the United States and Australia.

Sims has posted losses in five of the past 15 years, so it’s no surprise the stock is cheap. The current price of $6.86 seems to me to ignore a lot of woes: 13 times earnings, 0.29 times revenue, and 0.87 times book value.

Wall Street doesn’t bother to cover The Sims. If the company’s results improve a little, some companies may start or resume coverage. That would help the stock, which is trading close to its price during the Great Recession.

17% on average

Since 1998, I’ve written 18 articles on selling stocks at a low price-to-book ratio. (Today is the 19th.) The average one-year gain of my recommendations in this series was 17.75%, which is well above the Standard & Poor’s 500 index average of 10.28%. over the same periods.

Twelve of the 18 columns beat the S&P 500 and 13 were profitable.

Keep in mind that my column recommendations are theoretical and do not reflect actual transactions, transaction costs, or taxes. Their results should not be confused with the performance of the portfolios I manage for clients. And past performance does not predict future results.

Last year, my low price picks did well, thanks to a 161% gain in Ultra Clean Holdings Inc. (NASDAQ: UCTT). My recommendation from Transocean Ltd. (NYSE: RIG) was bombed, with a loss of nearly 45%.

In between were Loews Corp. (NYSE: L), up about 5%, and Bank OZK (NASDAQ: OZK) with a gain of 15%. My 2018-19 pick average was a 34% gain, compared to just under 16% for the benchmark.

Disclosure: I own Greenbrier stock personally and for some of my clients.

John Dorfman is president of Dorfman Value Investments LLC in Newton Upper Falls, Massachusetts, and a syndicated columnist. His company or his clients may own or trade in the securities discussed in this column. He can be contacted at [email protected]

This article first appeared on GuruFocus.

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