Summary
Value investing has historically yielded above average returns to shareholders.
The rotational shift from growth to value makes this a good time to invest in value companies.
The list below includes companies profiting from inflation, rising interest rates, robust real estate activity, and supply chain woes.
AlpamayoPhoto/E+ via Getty Images Investment Thesis
The companies below are trading near their book value and at discounted levels compared to their peers’ average PE ratio. All are posting extraordinary growth fueled by either company-specific dynamics or industry trends.
I don’t believe that these companies will remain at a discount for long. For example, Jackson Financials’ ( JXN ) shares increased 28% in the past three months, compared to a 2.5% decline in sector average. So did Zim Integrated Shipping ( ZIM ) and Sibanye Stillwater ( SBSW ).
The reason these companies are trading at a discount varies as discussed below. I believe all companies want to remain independent instead of being scooped in an M&A deal, which would be lucrative to the acquirer in my view. This is evident by take-over defenses put in place to protect themselves from such transactions. This means that they rely on the public to price their shares fairly, which I don’t believe has happened. These value companies represent market discrepancies and inefficiencies forming the foundation of value-investing, pioneered by Benjamin Graham, David Dodd, and Warren Buffet. Zim Integrated Shipping ( ZIM )
Zim Integrated Shipping ( ZIM ) is an Israeli sea freight business listed on the NYSE. The company operates 113 cargo ships serving established and niche global routes. It has been posting high revenue growth, fueled by a surge in shipping prices, allowing it to deleverage, accumulate cash, and pay a dividend. Ports are still clearing backlogs created by the pandemic, and many commentators believe that congestions aren’t easing anytime soon. In Los Angeles, there are 78 ships in a queue waiting for a docking berth to unload cargo. The more vessels wait to dock, the fewer in circulation, reducing the supply and pushing shipping prices up. ZIM has been one of those profiting from supply chain disruptions.
It operates a capital-light model that allows it to adjust its operations with demand without committing to expensive capital expenditure and risking overcapacity. ZIM’s capital-light model is ideal since, sooner or later, congestions will ease, and the company will be able to adjust its expenses better than other shipping companies investing in extra capacity.
In Q3 2021, ZIM reported $3.1 billion in revenue and $1.5 billion in net income, boosting its equity by 85%, breaking a cycle of stagnant growth in previous periods, a fact mirrored in our Seeking Alpha Quant Score below. However, if the company continues generating the same cash flow levels it has been in the past few quarters, it will be trading below its tangible book value sometime in the second half of 2022. This low valuation is also mirrored in the Quant Score below, rendering ZIM a top value pick this year. Zim Integrated Shipping Quant Score (Seeking Alpha ) Jackson Financial Inc. ( JXN )
JXN is a financial services company specializing in the sale of variable annuities, a contract sold by insurance companies promising periodic payments in return for a specific lump sum. This service is popular among retirees.
What is unique about JXN is its long history of profitability and established back office operations inherited from industry giant Prudential ( PUK ), which recently spun off the business. Now, one would ask, if JXN is a good company, why would PUK spin it off? Simply, PUK is going in a different direction, focusing on Asia instead of the US. Spinning off JXN will save money. Plus, it is good for shareholders, who received shares of JXN before it went public last September.
Rising interest rates might be harmful to some JXN assets especially fixed-income investments. As interest rates rise, these assets will become less appealing, and their fair value will decrease. However, as these bonds reach maturity, JXN will be able to reinvest in a high-yield environment, allowing it to receive more cash to fund its annuities payments.
In the first nine months of 2021, the company generated $2.6 billion in net profits from $7.3 billion in revenue, mostly management fees on its assets under management. The company currently trades below its book value, with a PE ratio of 1.6x compared to the 11x industry average. The company’s predictable revenue, solid historical performance, low valuation warrant a buy rating. Sibanye […]
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