Even though the big tech stocks that make up the Nasdaq have some of the highest price-earnings ratios on record, it’s still possible to find a few stocks at a low price. An investor must be prepared to accept the condition of a low volume of transactions in exchange for the Benjamin Graham “less than book value” part of the larger equation.
Each of these stocks pays a dividend, has positive earnings per share, and appears to have a reasonable debt-to-equity ratio. Almost all of them are stocks of regional banks, so they are very likely to be affected by Federal Reserve interest rate decisions and other Fed-related factors.
Amalgamated Financial Corp. (NASDAQ: AMAL) is headquartered in New York City with branches in Manhattan, the Bronx, and Brooklyn. The stock trades at a 10% discount to its book value and the price-to-earnings ratio is only 9.9, well below that of the market as a whole. There is no long term debt on the books. The benefits are positive for this year and positive over the five-year period as well. Amalgamated pays a dividend yield of 2.06%. The average daily volume is only around 76,000 stocks, which is very low but not that unusual for this type of microcap stocks.
Hanmi Financial Corp. (NASDAQ: HAFC), headquartered in Los Angeles, describes itself as “the first Korean-American bank … now serving all Americans.” With a price-earnings ratio of 9.9 and now available for purchase at just 96% of the book, it is considered a valuable title. Although the 5-year earnings record is slightly in the red, Hanmi is posting earnings per share growth of 30% this year. A dividend of 2.63% is paid. Equity exceeds long-term debt. The low average daily trading volume of just 150,000 shares is something to consider.
Kearny Financial Corp. (NASDAQ: KRNY) operates out of Fairfield, New Jersey, with branches statewide. Now trading at a 10% discount to book value and with a price-to-earnings ratio of 16, Graham would likely endorse this regional bank as a value. Investors receive a dividend yield of 3.37%. The financial institution has no long-term debt, which is usually a very popular and rare quality. Earnings per share are positive for this year and for the past five years. There is more liquidity with Kearny than with the other two stocks mentioned: the average daily volume is around 325,000 shares.
I repeat, when it comes to investing in bank stocks, whether they are large companies or these small regional ones: the effects of the decisions taken by the Federal Reserve are enormous. Taking positions in this sector requires the investor to keep a close eye on interest rates and the direction of the bond market, generally the same.
For the holder of low volume stocks, it is important to think about the potential for liquidity problems. For example, when massive sales occur in the market, it can be difficult to sell at the desired price. This is true, however, for high volume stocks as well. Diversifying holdings is generally a good idea.
This article first appeared on GuruFocus.