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
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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