Even after substantial gains this year, a number of financial stocks still trade below book value. While not covered back in January along with the insurers and airplane leasing firms, a cross section of other financial stocks continue to trade considerably below book value. While the fears from the financial crisis have mostly dissipated, the stocks continue to meander below book value even with strong earnings profiles.
Stocks ranging from business development corporations (BDCs) to regional banks in some cases still trade below book value.
While book values aren’t perfect, in most cases the books are even cleaner now than prior to the financial crisis, when most financial stocks traded at multiples of book value. The stocks, though, face fears of a rapidly rising interest rate environment. Combine that scenario with limited dividends and investors have been unwilling to pay for the value of the assets on the books.
Two cheap BDCs
While not typically focused on as part of the financial sector, these BDCs invest in either middle market or venture backed firms. Either way, American Capital Ltd. (NASDAQ:ACAS) and GSV Capital Corp (NASDAQ:GSVC) continue to trade significantly below book value. Back in January, the stocks traded at similar valuations at levels close to 0.7 times book value. With current prices not significantly different than at the start of the year, the stocks have failed to participate in most of the rally this year even considering the valuation proposition.
In the case of American Capital Ltd. (NASDAQ:ACAS), the company continues to repurchase shares at a significant clip each quarter. In a yield-starved market, most investors aren’t excited by this move to forego dividends even if it has helped juice the book value.
GSV Capital, on the other hand, invests in pre-IPO stocks to take advantage of a market that encourages companies to delay the IPO process. GSV Capital Corp (NASDAQ:GSVC) famously failed to profit from bets on Facebook Inc (NASDAQ:FB), Groupon Inc (NASDAQ:GRPN), and Zynga Inc (NASDAQ:ZNGA), but the current largest position in Twitter has the potential to be a home run now that it has matured. In essence, a new investor in GSV Capital is able to obtain these venture stocks at nearly 60% of actual market value.
A couple of regional banks
While the regional banks making this list are far from grossly undervalued, both Regions Financial Corporation (NYSE:RF) and SunTrust Banks, Inc. (NYSE:STI) continue to trade below book value, all while both stocks have reported strong earnings. As with most financials, these regional banks traded at book value multiples of 1.5 times in the years prior to the financial crisis. With the economy on the mend and real estate recovering, nothing in the current climate justifies a book value below 1. Both stocks could easily gain 20% in order to be inline with the current book value of both stocks.