Anthony Speciale Stock Market Analyst

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Two Undervalued Stocks Set to Survive and Thrive

If you’ve been with us for a while, you know that we try to base all of our conversations here around our five powerful, core ideas for making money in the stock market…

Buying stocks that are trading at a low price to earnings, stocks that are trading at a discount to asset value, special situation stocks, stocks with smooth, up-and-to-the-right momentum and solid income-producing investments. Everything we do is centered around one of those core strategies.

Sometimes, I like to take a couple of these factors, mix them up and see if we can put together a model that can catch lightning in a bottle. And today, I’m going to talk about a way to do exactly that.

We take stocks that have low price to asset value, low price to earnings and have strong fundamentals… That’s another one of our core beliefs. We’ll do some bottom fishing, but even then we want to do it in companies that have the type of superior fundamentals and capability to survive.

That’s one of the problems with buying cheap stocks. A lot of the time, you’re buying garbage. But we use selected financial tools to make sure we’re buying companies that can survive long enough to eventually thrive, recover and go on to trade at premium multiples, rather than at discounts to earnings and assets.

We want the best of the best, at the very best price. It may sound unreasonable, but that’s how you get rich in the stock market. Reasonable people buy index funds and just do okay. So, we’re going to be unreasonable and look for stocks that are trading at low prices to earnings and asset values and have superior fundamentals.

Loews Corporation

First up is Loews Corporation (L), which is the holding company of the Tisch family. If you are familiar with New York at all, then you know the Tisch family.

Two brothers from Brooklyn worked hard and built a fortune in real estate, buying and selling businesses, and now they have Loews Corporation. Three of the Tisch family are still involved in this company.

If you live in New York, you know that it wouldn’t look anything like it does today without the Tisch family. There are hotels, hospitals, art galleries and more that all exist because of large donations from the Tisch family. They’re very active in charitable and endowment type activities in the New York area.

Anyway, Loews owns CNA Financial, the giant property and casualty health insurance company, the high-end Loews hotels and they have a thriving natural gas pipeline and storage business.

I talk about it all the time… I’m wildly bullish on natural gas infrastructure assets in the US because natural gas is in such short supply, and demand is rising so fast that I think prices are going to remain elevated for an extended period of time, making these pipelines very profitable and very valuable. So, that’s kind of a hidden gem of this business.

We’re only paying 10 times earnings and 83% of book value for a company that if you broke it up and sold the parts off would be worth two or three times the current stock price. We’re getting this world-class collection of assets at a bargain price.

They have $3.5 billion in cash on hand right now, and they have been pretty active about using their cash to buy back stock. In fact, since 2012, they have bought back and retired about 35% of the outstanding shares.

Remember, every share of stock bought back makes all the shares of stock that we own a little bit more valuable. So, when they buy back a lot, it increases the value of our holdings by a lot.

The three great business segments are worth a lot more than they’re currently trading for, and they’re run by one of the most successful families in the history of New York City with deep ties to the city and a long track record of extreme amounts of success in the business world and financial markets.

So, we get to co-invest right along with the Tisch family when we buy shares of Loews Corporation.

Beazer Homes USA, Inc.

Next up is another one that I love, and that is Beazer Homes USA, Inc. (BZH). There is a housing boom going on as well as a home building boom, and one of the reasons we’ve seen prices go up so high is that there’s no inventory.

Something like 60% of existing homes are owned by people over 60 years old who have no interest in moving any time soon if ever. We came into the pandemic with a two million home shortage, and today because of millennial family formation and the exodus out of larger cities, there’s now a four to five million home shortage.

We need a lot of homes to be built, especially in the lower and middle ranges of the housing market. This building boom is going to go on for some time, and while pricing pressures could ease a bit, the boom itself to meet all the demand that’s out there is not going away.

BZH operates in 13 states, mostly in the southern part of the US as well as Arizona and Nevada, which is where everyone wants to move right now. They’re in the best markets they could possibly be in right now, which is also going to help demand for their products rise a bit faster than some of the other builders.

They’re building communities that are at all price points, but a fast-growing segment of this company is the one that’s building the 55-year-old-plus communities. These are becoming very popular as the US population ages, and meeting that demand is going to be incredibly profitable for BZH.

We’re paying just five times earnings for a company that can continue growing at 15%-20% a year for several more years and possibly as long as five more years. It’s trading at 92% of tangible book value, and it’s going to be a huge earnings pop in 2022, so we could very well see this stock double over the next 12 months.