More Stocks Trading Below Tangible Book Value

NEW YORK (TheStreet) -- Last Friday's column focused on the one-year results of a screen that I utilize for identifying promising companies trading below tangible book value. While the returns were compelling, the true mark of a successful stock screen is its ability (or lack thereof) to demonstrate consistent outperformance. In truth, with markets on the rise over the past year, this was a fairly easy environment in which to outperform.

Although I was not disappointed by the average 50% gain in the seven companies I selected from the results of my screen, it won't be that easy over the coming year.

First off, last year's screen actually revealed several dozen companies that met the screening criteria. I then selected the seven that appeared to be the most promising. Just one year later, the ranks are much thinner, with just 30 candidates. This is not all that surprising; in rising markets, value is harder to find. This year's candidates are also significantly smaller, in terms of market cap, than last year's crop and significantly less well known and followed. By way of reminder, the screening criteria are as follows:
  • No financial names
  • Long-term debt to equity less than 50%
  • Companies must be profitable on a trailing 12 month basis
  • Minimum market cap $100 million

Aircraft and aviation outsourcing company Atlas Air Worldwide Holdings ( AAWW), is one of the more intriguing names. Currently trading at just .77 times tangible book value, Atlas also appears inexpensive at 8.5 times trailing earnings, and the same multiple of 2014 consensus analyst estimates. The company has also been buying back stock, and has reduced shares outstanding by 5% since year-end 2012.

Atlas has not participated in the current rally, and shares are down 9% over the past twelve months. In fact, the stock was damaged substantially last month, falling 24% on October 31st, after the company announced disappointing guidance for the remainder of this year. AAWW Chart AAWW data by YCharts

Also making the cut was photo mask manufacturer Photronics ( PLAB), which currently trades at .92 times tangible book value, and about 13.5 times 2014 consensus earnings estimates. The company ended its latest quarter with $197 million, or $3.22 per share in cash. Shares fell 4% last Wednesday after the company pre-announced worse-than-expected fourth quarter results. The company, which is not for the faint of heart, is likely to be volatile with the full fourth quarter earnings release due on December 11th.

Other companies that made the list this year include gold and silver mining company Coeur Mining ( CDE), satellite communications company Iridium ( IRDM), specialty boating supply retailer West Marine ( WMAR), oil well services company Rowan ( RDC), a holdover from last year's list, and engineered solutions company Richardson Electronics ( RELL).

Without a doubt, the quality of this year's qualifiers are not nearly as high as last year's, which could make for some interesting results. So it goes in the land of deep value, which is becoming sparser with each trading day.

At the time of publication, Heller held no position in any of the stocks mentioned in this article.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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