There appears a general consensus among value investors that the market is generally overpriced. It has become difficult to find overwhelming value over recent years, and many value investors are holding larger than usual amounts of cash. Warren Buffett’s Berkshire Hathaway Inc. Class A (NYSE: BRK.A) is a case in point, with over USD$100 billion in cash.
However, there may be one or two companies, at least relatively speaking, where the value proposition is reasonably strong.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
‘Soul Patts’ is a self-described ‘investment house’. It holds a diverse portfolio of assets across a range of industries, including investments in natural resources, building materials, telecommunications, retail, agriculture and property. Some of the more well-known brands in which the company owns significant stakes are TPG Telecom Ltd (ASX: TPM), Australian Pharmaceutical Industries Ltd (ASX: API), and Brickworks Limited (ASX: BKW). Importantly, some of these large holdings for the company look reasonably ‘cheap’. Any meaningful rebound in the share price of these companies should be reflected in the Soul Patts price.
The company has a strong return on equity, and currently trades at around 1.3 times book value.
Macquarie Atlas Roads Limited (ASX: MQA)
Macquarie Atlas Roads is another ‘boring’, stable business that lends itself to reasonable estimations of value. The company owns and operates toll roads, bridges and tunnels in France, the United States and Germany. The company invests in global infrastructure assets that generate stable cash flows and offer potentially resilient long-term performance through economic cycles.
The company maintains a good return on invested capital, and it currently trades at 1.8 times book value.
Fortescue Metals Group Limited (ASX: FMG)
Fortescue has looked a little troubled of late. Volatile iron ore prices and decreasing demand for its lower quality iron ore have dented profits and hurt the share price over the last few years. However, when investors start to extrapolate such movements into the future the company can become undervalued.
Fortescue is currently trading at a P/E ratio of around 7.2, and at less than 1.2 times book value.
There may be some pockets of value around for those who desire boring business and long time horizon. I think that Washington H. Soul Pattinson, Macquarie Atlas Roads, and Fortescue Metals offer three such opportunities.
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Stewart Vella owns shares of Berkshire Hathaway (B shares) and Fortescue Metals Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of and has recommended TPG Telecom Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Berkshire Hathaway (B shares) and Brickworks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.