David Sterman

In an ideal world, the entire basket of U.S. stocks would be arranged in terms of the value they represent. The most richly-valued stocks would be obvious sell candidates, and the most inexpensive stocks would all be bought up. 

But that's not how the market works.

From day to day, overvalued stocks can climb yet higher, while undervalued stocks can fall and fall. Some of them fall so much that they move far below any logical, rational level. I'm talking about stocks that are valued well below the tangible book value that can be found on the company's balance sheet.

These stocks can stay "below book" for awhile, as many stocks did throughout 2002 and again in 2009. But eventually logic prevails. 

Well, 2012 brings us another trove of "below book" value plays. I found more than 100 companies out of the 1,500 that are in the S&P 400, 500 and 600 that trade below tangible book value.

To narrow the list, I am looking at stocks that trade for less than 80% of tangible book, have seen their book value rise in each of the past three years (meaning they are actually adding value to the company), and should see book value rise even more in 2012 and 2013 because they are expected to remain profitable.

I found 20 stocks that fit the bill, and fully half of them are insurers.

Why are these insurance stocks so cheap? Because interest rates are so low and they can't generate their historical levels of profit margins. Still, all of these insurers saw book value rise, even in the last downturn, and should keep raising book value as expected profits fatten up the balance sheet even more.

You'll find another 10 deeply undervalued stocks in this table.


David Sterman

David Sterman has worked as an investment analyst for nearly two decades. He is currently an analyst for StreetAuthority.com