Capital One stocks sell beneath book value

PEOPLE can argue all day about whether book value is a good gauge of a stock’s value. I say it is, and I believe the results from this column tend to prove it. Book value is a company’s net worth — the sum of its assets minus its liabilities. It is usually expressed per share — that is the total dollar figure divided by the number of shares outstanding.

Last year, I had offsetting big gains and losses. Dorian LPG (LPG) returned 105 percent but Argonaut Gold Inc. (ARNGF) lost 88 percent. Graham Holdings Co. (GHC) had a small gain and Loews Corp (L) had a small loss. In the aggregate, my selections returned 5.5 percent while the S&P 500 was down 17.3 percent.

My new choices among stocks selling below book:

Capital One

Capital One Financial Corp. (COF), a banking company based in Mclean, Virginia, is the 10th-largest bank in the United States, ranked by assets.

Compared to most banks, Capital One puts much more emphasis on credit card lending. It is also active in car loans and commercial loans. It is relatively light on brick-andmortar branches and on mortgage lending.

The stock is cheap, selling for about five times earnings and just under tangible book value. Many people think a recession is in the offing; hence, they are unwilling to pay up for a bank with heavy credit card exposure.

Besides its cheapness, I like Capital One’s historical growth rate — roughly 7 percent a year for both sales and earnings over the past decade.

Kelly Services

Kelly Services Inc. (KELYA), based in Troy, Michigan, is one of the larger staffing companies in the U.S. Its stock sells for 0.53 times book value and 12 times earnings.

Kelly’s profitability has been disappointing. It lost money in three of the past 15 years, and hasn’t had a single year I would consider great.

You read a lot these days about companies having trouble finding qualified employees. So it seems to me that this should be a good time for staffing companies. After showing no revenue growth over the past decade, Kelly increased its revenue about 7 percent in the past year. That’s a start.

Fulgent Genetics

A nearly debt-free choice is Fulgent Genetics Inc. (FLGT). Based in Temple City, California, the company does genetic testing for doctors and hospitals. It branched out into doing COVID-19 testing, and revenue from that source soon dwarfed its core business. Now, COVID-TEST revenue is ebbing.

That’s why the stock is so cheap, selling for only 0.9 times book value and less than five times earnings.

Core (NON-COVID) revenue, though small, is rising. And the company has $571 million in cash and marketable securities. At its current price (around $39 a share), I think Fulgent is attractive.

Westrock

Westrock Co. (WRK), out of Atlanta, is one of the nation’s largest producers of packaging, such as corrugated boxes and folding cartons.

Westrock sells for 0.84 times book value.

Of course, companies that sell below book value are cheap for a reason. They have problems, and everyone knows it. But in the stock market, that’s not necessarily bad. It’s often better to buy a cheap stock with palpable problems than an expensive stock with hidden ones.