In Search of Two-Cent Pennies

NEW YORK (TheStreet) -- I admit to spending time looking at the pocket change I receive from the bank, fast food drive through or local grocery store.

Perhaps it's not all that strange for a value investor. But part of the somewhat strange habit, which elicits funny looks from my family when they catch me in the act, is also that I was a coin collector as a child. You never know what you might find in your hand.

While it's rare to discover anything with numismatic value, I am seeing a proportionately high number of copper pennies these days, primarily those minted prior to 1982. In that year, the U.S. mint changed the penny recipe from 95% copper to 97.5% zinc. You may consider this a boring and useless fact until you know that, at current prices, pre-1982 pennies contain 2.28 cents worth of copper, while the newer variety contain about a half cent worth of zinc.

In some ways, the hunt for copper pennies is similar to value investing. You've probably heard it described as looking for "fifty-cent dollars." Now you can substitute a "two-cent pennies" for the more common metaphor. Whatever you call it, the objective is the same: to identify companies that are undervalued, overlooked and under-appreciated whose value may ultimately be realized by the market.

There are many methods and schools of thought about how to identify value, and I utilize several different ones myself. I am partial, however, to those that consider a low price-to-book value or price-to-tangible-book value as a factor. To that end, I have screened for companies with the following attributes in search of two-cent pennies:

• Market cap greater than $500 million
• Price-to-tangible-book value below 1
• All sectors except financials
• Long-term debt-to-equity ratio below 50%
• Positive earnings in the trailing 12 months

That represents a rather strict criteria set, so it's not surprising that just 11 names make the cut.

Corning (GLW), the biggest of the bunch, currently trades at 0.88 times tangible-book value and 8 times 2013 consensus earnings estimates. After nearly tripling in value from its 2008 lows, the shares have lost about half of their value since early 2011.

Corning is also cash rich, with more than $6.3 billion, or $4.21 a share, in cash and short-term investments. It also has about $3.26 billion in debt, primarily long-term, but that equates to a low 15.1% long-term debt-to-equity ratio. Shares, which currently yield 2.5%, are not all that well liked by the Street, and expectations are low.

GLW data by YCharts

Other companies that qualify include Ingram Micro (IM), a net/net that I own. Oil- and gas-related companies are well represented with Hess (HES), Rowan (RDC), Patterson-UTI Energy (PTEN), Unit Corp. (UNT) and Gulfmark Offshore (GLF).

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