Zacks Investment Ideas feature highlights: Valero Energy, American Greetings and Goldman Sachs

CHICAGO, Jan. 13, 2012 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Valero Energy (NYSE: VLO), American Greetings (NYSE: AM) and Goldman Sachs (NYSE: GS).

(Logo:  http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

3 Cheap Stocks

There are many ways to value a company. One of the most conservative ways is to take the value of a company's assets and subtract its liabilities. What's left over is the company's book value.

Of course, the value of a company's assets and liabilities are often subject to estimates by management and can include hard-to-measure intangibles like goodwill, patents and intellectual property. But if you strip out intangible assets and focus just on hard assets, and subtract the liabilities, you're left with the more conservative tangible book value.

Essentially, this is the what's left over for shareholders if a company were to liquidate all of its assets and pay off all of its obligations.

Catch-22

So how much are you willing to pay for a company's net assets? This usually depends on a how well the company is doing. Typically companies with strong returns on equity (ROE) and thus growing book values trade at high multiples to their book value.

But historically, stocks that trade at low price to book (P/B) multiples tend to outperform those with high price to book multiples.

S&P Cheap by Historical Standards

Currently the median price to book multiple on the S&P is 2.4, well below its 15-year median of 3.8. And the median ROE is increasing. That's a sign that the stock market may be undervalued.

And if you look hard enough, there are some really great values out there.

3 Cheap Stocks

Theoretically a company shouldn't trade below its tangible book value. But I've found 3 that are currently doing just that, while also maintaining a solid ROE.

In other words, if these companies were to cease operations today, sell off all of their tangible assets and pay off all of their liabilities, what's left over would be worth more than what the market is currently pricing them at.

1. Valero Energy (NYSE: VLO)

Return on Equity (TTM): 16.7%
Return on Equity (5yr Avg): 13.0%
Price to Book Value: 0.7
Price to Tangible Book Value: 0.7

2. American Greetings (NYSE: AM)

Return on Equity (TTM): 12.1%
Return on Equity (5yr Avg): 9.6%
Price to Book Value: 0.7
Price to Tangible Book Value: 0.7

3. Goldman Sachs (NYSE: GS)

Return on Equity (TTM): 8.4%
Return on Equity (5yr Avg): 19.2%
Price to Book Value: 0.7
Price to Tangible Book Value: 0.8

The Bottom Line

Tangible book value is what's left over for shareholders if a company were to liquidate all of its assets and pay off all of its obligations. It is rare for stocks to trade below this level, especially ones with positive returns on equity. But these 3 are currently doing just that.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Len Zacks. The company continually processes stock reports issued by 3,000 analysts from 150 brokerage firms.  It monitors more than 200,000 earnings estimates, looking for changes.

Then when changes are discovered, they're applied to help assign more than 4,400 stocks into five Zacks Rank categories:  #1 Strong Buy, #2 Buy, #3 Hold, #4 Sell, and #5 Strong Sell. This proprietary stock picking system; the Zacks Rank, continues to outperform the market by nearly a 3 to 1 margin.  The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter Profit from the Pros.  In short, it's your steady flow of profitable ideas GUARANTEED to be worth your time.  Get your free subscription to Profit from the Pros at:  http://at.zacks.com/?id=7298

Follow us on Twitter:  http://twitter.com/ZacksResearch

Join us on Facebook:  http://www.facebook.com/ZacksInvestmentResearch

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Media Contact
Zacks Investment Research
800-767-3771 ext. 9339 
[email protected]  
http://www.zacks.com

SOURCE Zacks Investment Research, Inc.