This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

3 Value Investing Ideas For May

Stocks in this article: AIG BAC SHLD

Chris Lau, KAPITALL Contributor:  Value Investors sometimes confuse the search for value with bottom fishing companies that are prone to fall further. One way to avoid the value trap is to look more closely at the balance sheet, compared to the income statement. Bruce Berkowitz, who is the founder of Fairholme Capital Management, shares his view at the University of Miami.

The video is worthwhile:

(hat tip to valuewalk )

To summarize, Berkowitz makes a case for Bank of America (BAC), American International Group (AIG), and Sears Holdings (SHLD). AIG is his largest position and was purchased at less than the cash value held by the company. Sears is viewed upon as a real estate investment. The bullish thesis for Sears is based on liquidation value, and these companies are valued at that level alone. Both the brand name and the real estate value are not accounted for in the share value of the company.

Berkowitz thinks the U.S. economy is on the recovery phase. He likes companies that are most hated.


AIG is deeply undervalued and is an investment favorite for many big hedge funds, but it is still possible for insurance companies like AIG to allocate an insufficient amount in reserve losses on its balance sheet. Following the height of the financial crisis, reserve losses rose. In 2011, AIG booked $4.1 billion in net charges to clean up its balance sheet. In 2009, Chartis, the property and casualty insurance unit, took a $2.3 billion charge.

Bank of America reserved $8.5 billion to cover claims against Countrywide Financial. If the amount is too small, it could hurt the bank’s balance sheet more than originally thought.

Bank of America reported first quarter earnings that improved, helped by cost-cutting activities. The bank earned $0.20 per share on revenue of $23.7 billion. Non-interest expenses were $18.15 billion, declining by $1 billion from last year. Tier 1 capital rose to 10.58% from 10.38% over the previous quarter. The tangible book value per share for the bank is $13.46, compared to $12.87 last year.

The CEO of Sears Holding will stay onboard for another year, and will earn a mere $1 a year in salary. The bulk of compensation will be through stocks and incentive payouts. The company is enhancing shareholder value by paring down assets and improving its balance sheet.

Written by Chris Lau, KAPITALL Contributor


Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs