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John Dorfman

Four stocks selling for book value or less

| Monday, Nov. 13, 2017, 11:00 p.m.

It's a pricey market. Yet, amazingly, about 7 percent of U.S.-traded stocks are selling for book value or less.

Book value is simply a measure of a company's net worth. The calculation is just like the one you go through to determine your personal net worth. You add up your home equity, investments and other assets. Then you subtract your mortgage, car loan and other liabilities.

With a corporation, there are a few more rules and wrinkles, but the concept remains: Add the assets, subtract the liabilities and you have “book.”

Value pioneer Ben Graham liked to buy stocks selling for book value or less — as have many value investors who followed in his footsteps. Stocks don't become cheap for no reason, but the risk-reward ratio can often be favorable on these stocks.

Here are four stocks that are selling for book value or less.

Tutor Perini

A mid-sized engineering and construction company, Tutor Perini Corp. (TPC) is based in Sylmar, Calif. Its stock is volatile. It was up more than 50 percent in a year five times in the past 15 years and it was down 25 percent or more four times.

Some of the company's specialties are bridges, highways, tunnels, hotels and casinos. It also engages in many other kinds of construction projects. The first three could get a boost if Congress passes an infrastructure bill in the next few months.

Tutor Perini shares go for only 0.74 times book value, and 1.26 times tangible book value. The latter excludes intangible assets such as goodwill. (Goodwill is an accounting entry used when a company acquires another company, paying more than book value for its assets.)

Weis Markets

Weis Markets Inc. (WMK) strikes me as a potential acquisition target, now that Amazon has acquired Whole Foods and foreign grocery chains are showing interest in penetrating the U.S. market. If I'm wrong, the 3.5 percent dividend yield should be some consolation.

The supermarket chain, with about 200 stores, has a stronghold in Pennsylvania but also operates in several other states. Its stock sells for exactly book value, and 1.08 times tangible book.

Weis's net profit margin lately has been running about 2.3 percent. Nobody likes such a narrow margin, but it's actually not bad for the supermarket industry, where you sometimes need a micrometer to measure the paper-thin margins.

China Yuchai

Based in Singapore and incorporated in the Bahamas, China Yuchai makes and services diesel engines in China. Earnings are erratic and so is the stock. I've written about this company before, but feel I should mention it here since the shares go for 0.78 times stated book value and 0.81 times tangible book.

Risks are manifold, including a past history of friction between the Singapore parent and the Chinese manufacturing branch, possible further slowing of China's economy and the extreme volatility of the Chinese market.

Making up for some of the risk factors is the cheapness of the stock. In addition to selling below book, it fetches only nine times earnings, and 0.4 times sales.


From last year's list, I'll bring back Prudential Financial Inc. (PRU), which — despite a 27 percent gain in the past year — is still selling for less than tangible book value.

Insurers typically enjoy “float,” the use of money between the time premiums are paid in and the time claims are paid out. They usually invest the float in bonds, and the interest rate on bonds has been low in recent years. I think the rate will creep up in the next 2-3 years, fattening insurers' profits.

According to Bloomberg, six of the 12 analysts who cover Prudential have raised their earnings estimates over the past month. The other six left their estimates as they were.

Past results

This is the 17th column I've written since 1998 on stocks that look cheap compared to their book value. The average 12-month return on my recommendations has been 18.3 percent, versus 10 percent for the Standard & Poor's 500 Index.

Of the 16 previous columns, 12 were profitable and 11 beat the S&P 500.

Last year's crop edged out the index 24.9 percent to 21.5 percent, thanks chiefly to a good gain in Kelly Services Inc. (KELYA). Atwood Oceanics Inc. (ATW) and Prudential Financial also beat the market. AV Homes Inc. (AVHI) and Roadrunner Transportation Systems Inc. (RRTS) were up but trailed the index.

Bear in mind that my column recommendations are theoretical and don't reflect actual trades, trading costs or taxes. Their results shouldn't be confused with the performance of portfolios I manage for clients. And past performance doesn't predict future results.

Disclosure: I own China Yuchai shares for a few clients, and Tutor Perini shares for one client.

John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Mass., and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at

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