It’s been my belief for the past several months the market in general is overvalued. That means a lot of the single stocks that comprise the market are overvalued, but there are still a few out there that I think are still very undervalued.
One simple example is RTI International Metals (RTI), a company that produces titanium mill products. As far as I can tell, it is the third largest of such companies in the U.S., behind ATI and TIE. RTI is trading at a price to book ratio of 0.79. That means you’re just paying 79 cents on the dollar for a company that provides a high-performance (and often mission-critical) product to a diverse array of industries.
Another example is Smart Balance (SMBL), which distributes food products and is known for the Smart Balance Brand. This company became public through a reverse merger with a special purpose acquisition company. Right now SMBL is trading at a 20% discount to book value (0.8 P/B ratio). There has been insider buying throughout this year. Though the Smart Balance brand is likely not in terribly high demand as consumers are trading down for less-expensive (and probably less healthy) products, SMBL will not perform as well as it could. However, I do believe the price of the stock will eventually move up to at least fully reflect book value.
Finally, there is United Fire and Casualty, an insurance company I have mentioned before. Since my previous mention, UFCS has gone up slightly, but I think it still represents a great bargain despite it not being a top-notch insurance outfit like Berkshire or Markel. UFCS is trading at a 0.73 P/B ratio.
I know these examples are pretty basic in that I’m only basing them on P/B ratios, but oftentimes, the simplest method is the best one. Greenbackd has recently been posting some great stuff about how the price to book ratio is a demonstrably useful predictor of future investment returns.
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