A big part of value investing is looking for stocks that are trading below their intrinsic value but are undervalued or ignored by the broader market. Over time, the market will eventually realize its mistake and price the stock accordingly.
In these kinds of difficult market conditions, where investors have sold stocks intensely this year, there’s lots of value to be found from a long-term investing standpoint. Here are three stocks that you can currently buy for less than $0.95 on the dollar.
1. Ally Financial
Ally Financial (NYSE: ALLY) is a large digital consumer bank with more than $184 billion of assets and specializes in auto lending. The legendary value investor Warren Buffett and his company Berkshire Hathaway recently scooped up the stock in the first quarter of the year. Banks trade relative to their tangible book value (TBV), or net worth, and currently, Ally trades at roughly 89% of its TBV.
With auto prices on new and used vehicles soaring in recent years, Ally has done well, notably generating a 24% return on tangible common equity (ROTCE) in 2021. This was certainly elevated, but management is still aiming for higher returns than pre-pandemic going forward. While many are worried about how elevated car prices may impact auto loans, Ally’s management team seems to be prudently preparing for an eventual decline in prices.
The company has also greatly improved its funding base in recent years, currently has a dividend yield of close to 3.3%, and repurchases a lot of stock. I think Buffett and Berkshire are onto something here.
2. Jefferies Financial
Investment bank Jefferies Financial (NYSE: JEF) stock has sold off intensely in 2022, with the stock down more than 30%. After a banner year in 2021, investment-banking activity has slowed significantly this year, and things only got worse for Jefferies in the company’s second quarter, ending May 31.
The bank saw investment-banking and capital-markets revenue of nearly $1.1 billion decline roughly 31% from the same quarter of 2021. Equity and debt underwriting have taken a hit this year as the entire industry has seen new issuance activity for events like initial public offerings plummet. Equity and fixed-income capital markets’ revenue also fell about $63 million from the previous quarter.
Obviously, Jefferies’ performance is dependent on investment banking picking up, which can be hard to predict, but management continues to take advantage of the discount to repurchase shares while they’re trading below TBV. This is beneficial because it helps grow TBV. A higher TBV tends to be very beneficial to a stock’s performance in the long term.
Jefferies also has a very strong dividend yield of close to 4%. You can currently buy the company’s stock for slightly less than 75% of its TBV.
3. Customers Bancorp
Customers Bancorp (NYSE: CUBI) is a technology-driven bank based in Pennsylvania with $19 billion in assets. It runs a diversified business. The bank caters heavily to small businesses but also offers a number of consumer lending products. It’s recently built a real-time payments platform to better facilitate institutional crypto trading.
In a mid-quarter update in June, Customers Bancorp said that it still plans to beat or meet its initial guidance of $4.75 to $5 of core earnings for the year, meaning it’s trading around seven times projected 2022 core earnings. The bank also said it expects to generate a 17% return on common equity this year, which is very strong, and grow TBV to $40 per share by the end of the year.
The bank’s stock is down more than 49% this year, and the company has been taking advantage of this discount to repurchase stock. You can purchase shares of Customers Bancorp at about 90% of its TBV right now. I’m personally a big proponent of the stock.
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Ally is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has positions in Customers Bancorp. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and Jefferies Financial Group Inc. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.