This past Wednesday (June 1), the Dow Jones Industrial Average (DJIA)
dropped nearly 300 points in just one day, causing investors to feel a bit shaken. Tempting as it may be to load up on names that now seem like bargains, further market drops may still occur in the next few weeks and months. This is why it pays to focus on stocks that have clear downside support. And as Benjamin Graham and David Dodd once noted in their famous tome Security Analysis, the safest stocks are those that trade for less than their tangible book value.
Naturally, investors need to understand what's on the balance sheet to see whether the assets are truly appealing. For example, dry-bulk shipping stocks look awfully inexpensive by this measure, but as I recently noted in this piece, the value of the ships these companies own may be worth a lot less than the value carried on their balance sheet, leaving only one stock among the group looking truly appealing.
With this in mind, here are four stocks that trade well below tangible book value, while holding assets that are appropriately valued on the balance sheet. 1. Delta Petroleum (Nasdaq: DPTR)
Delta Pete drills for oil and gas, and has several key oil fields that are starting to see rising output. Recent tests on yet-to-be-tapped wells are also showing a lot of promise. But the company has been dogged by concerns that it carries too much debt, so it will need to boost cash levels to fully realize its development program. This is precisely what appears to be happening. On a recent conference call, management noted several options -- including asset
sales -- could be pursued in order to relieve those debt concerns. If and when that happens, value investors are likely to notice the wide gap between market value (about $200 million) and tangible book value (about $500 million).2. Republic Airways (Nasdaq: RJET)
A heavy debt load is also weighing on this company, the operator of Frontier Airlines, which has seen its stock fall by half since last November as rising jet fuel prices turn anticipated profits into losses. Yet these debt concerns may be overblown.