Saturday, December 11, 2010

Top Yielding Stocks Selling Below Book Value

Imagine that you own shares of a company that has a million shares that are trading for $10 per share. This would give the company a market capitalization of $10 million. Now further imagine that if you add up all the assets of the company, such as bank accounts, inventory, equipment, and real estate, it comes to $15 million, then adding all the liabilities such as debt and short term loans amounts to $3 million. When you subtract the liabilities from the assets, it gives the company a net worth of $12 million. Divide that number by the million shares and you end up with a $12 per share book value, in very simple terms. What that means is, also in very simple terms, if you buy the stock today and the company goes out of business today, you would end up with a $2 or 20% increase in your investment.

Many stocks sell below book value for numerous reasons. The industry or sector could fall out of favor, tax selling, and a bearish stock market are just a few examples. has turned up a list of over 25 stocks selling at or below book value, most of which have yields above 3.5%. One example is Telecom Italia S.p.A. (TI), the large Italian telecom company which provides fixed-line and mobile telecommunications, Internet, and media services throughout the country. The Italian government may be suffering but Italians are still making phone calls. The stock is trading at two thirds of book value and pays a yield of 3.5%. Earnings for the latest quarter were up over 207% on flat revenues. The stock trades at 15 times forward earnings.

Great Plains Energy Incorporated (GXP) is another discounted stock. This electric utility, which serves Missouri and Kansas, is selling at 87% of book value and sports a yield of 4.3%. Earnings for the latest quarter were up 67% on a 24% revenue increase. It sports a forward price to earnings ratio of 12.

The shares of Brandywine Realty Trust (BDN) are trading at 77% of book and yield 5.5%. This REIT owns office and industrial properties. The stock trades at 8.5 times forward earnings.

To see the complete list of the major high yield stocks trading below book value, which can be downloaded, sorted, and updated, go to Fourteen of the stocks have yields above 5% and four provide yields over 7%.

Disclosure: Author did not own any of the above at the time the article was written.


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