Finding value in a market that has risen more than 70% of the 52-week lows can be very tricky. It becomes even more problematic when you consider that stocks have been rising steadily since the end of the Great Financial Crisis a decade ago…
Finding companies whose shares trade at low multiples of cash flow and asset values is a difficult task right now.
It can also be a dangerous one…
Avoiding these traps is critical for successful value investing.
Fortunately, some signposts can help us determine which undervalued companies have the best chance to rebound and deliver enormous profits.
Finding companies that trade for less than their book value – the value of everything they own minus everything they owe – and have fantastic fundamentals is one way to uncover value stock with the potential for huge gains.
We can limit our search for just those stocks trading below book value that high Piotroski F-scores.
The higher the F-score, the more fundamentally sound the company is right now. A score of 9 is perfect, and a score below 5 indicates deteriorating, potentially dangerous fundamental conditions in the financial statements.
So, the first thing we are going to do is only look at companies with an F-score of 7 or higher.
Then, we will take a look at stocks with large insider or institutional buying of the stock in recent months.
And last, we need to see that smart people who are either running the company or know it inside and out as large investors are buying more of the stock.
Based on that criteria, here’s our first best value stock to buy now…
This Top Value Stock Is Capitalizing on an Important Trend
Beazer Homes USA Inc. (NYSE: BZH) is a home builder that caters to first-time buyers.
2020 gave us many things, but one of the biggest trends that developed last year was urban flight.
Tired of living in a dense environment during a pandemic along with civil unrest, millions of people have left many of our biggest cities.
Thanks to advances in work-from-home technology, many of them are never going back. This has created a huge demand for homes. We had a housing shortage before the pandemic, and now demand is running far ahead of supply…
Beazer should see explosive earnings growth over the next year that will drive the stock price higher. The stock is trading at just 78% of book value, and the fundamentals are fantastic. The company earns an F-score of 7 right now.
Several directors have been buying the stock over the past few months…
In late November, CEO Allan Merrill exercised his options on over $1 million worth of stock and didn’t sell a single share.
That’s wildly bullish and will ultimately help build a price floor under the stock.
By the time 2021 is over, it wouldn’t surprise me to see BZH stock double.
The Best Value Stock to Buy Now Should Capitalize on the Same Trend
Tejon Ranch Co. (NYSE: TRC) is another company in the building business and should see strong demand from the great urban exodus. Tejon owns about 270,000 acres about 60 miles north of Los Angles, so it is in a fantastic position to profit.
It is the largest parcel of land in California, and Tejon Ranch has plans to monetize its value over the next decade. The plan is to build three master-planned communities in the area along with 35 million square feet of commercial real estate.
Tejon already has an industrial center with 14 million square feet and 319,000 square feet of retail space. Companies like Famous Footwear, IKEA, Dollar General Corp. (NYSE: DG), and Caterpillar Inc. (NYSE: CAT) have distribution centers in the Tejon Ranch Commerce Center.
The company also has 6,000 acres of farmland planted in wine grapes, almonds, and pistachios.
Tejon has 3,410 oil wells of land and 2,000 acres of land leased to National Concrete for aggregate mining. There is also 145,589 total acre-feet of water held for future use and purchased water contracts.
And finally, Tejon is looking to be a significant player in the renewable energy markets.
Management is currently in discussions regarding the placement of large-scale solar facilities on the property. In addition, IKEA’s distribution center at the Tejon Ranch Commerce Center features the second-largest rooftop array of solar panels in California.
Tejon Ranch is a unique collection of assets. As the mixed-use master-planned communities with homes, retail, and hotel space are developed, the property’s value should skyrocket.
People are looking to get out of Los Angles and Los Angeles country right now. COVID-19 is running amuck. As a result, hospitals and emergency rooms are overrun.
The greater L.A. area has also seen a lot of civil disturbance this year, and homelessness has become a significant issue in the region.
Tejon Ranch communities will be an easy choice for those looking to get out of the L.A. metro area.
Towerview LLC, the holding company for the uber-wealthy Tisch family, has been a persistent buyer of TRC stock recently. The family has a seat on the board and has a sharp eye on the monetization process.
The stock is trading at about 95% of book value and about a third of what the real estate will be worth when the development process is concluded.
Tejon Ranch might now be a stock that can make you rich overnight, but aggressive patient investors could earn massive profits from this stock – at least double by the end of the year.
— Money Morning Staff