5 Stocks for Serious Bargain Hunters

I love investing in enduring, top-quality companies that pay handsome dividends. Get me started on a boring, but solid company like food-distribution giant Sysco and you'll have a tough time getting me to shut up.

Unfortunately, these companies don't always sell at particularly attractive valuations.

For that reason, in addition to buying high-quality dividend payers like Sysco, I also dig through the muck of the stock market bargain bin, searching out beaten-down, left-for-dead stocks that could provide healthy returns. Mind you, I don't bet big on individual stocks that I find through this process. Instead, I make many small bets as a group, relying on the potential that broadly investors are overly pessimistic on these low-valuation stocks and that many will end up paying off big even as a few blow up spectacularly.

What constitutes a bargain-bin stock for me? My preference is for stocks that are selling for less than half of their stated book value. But since there are generally very few stocks that fall into that valuation level, I'm often willing to go as high as a 40% discount to book value.

Here are five that I've got my eye on right now.


Market Cap

Price-to-Book Value

Regions Financial (NYS: RF)

$7 billion



$51 billion


Argo Group (NAS: AGII)

$947 million


DryShips (NAS: DRYS)

$1.1 billion


Marriott Vacations Worldwide

$753 million


Source: S&P Capital IQ.

When it comes to rummaging through the bargain bin right now, there are financial companies a-plenty. In fact, it's mostly financial companies. So why Regions? In simple terms, it's a decent regional bank that got clobbered during the banking crisis, but has been slowly, but steadily coming back. Its capital position is solid and while it still has some considerable challenges on its balance sheet, it's at least moving in the right direction. As 2012 moves forward, broad economic factors and the bank's efforts to sell its investment banking arm will have big impacts on the stock.

It legitimately pains me to have AIG on this list. The company is practically the poster child for financial-meltdown idiocy. However, when I step back and take a sober look at the company, I can't help but conclude that the issues that nearly sunk the insurer were due to a very specific, since-exorcised tumor, not the company's core insurance operations. At this point, there are few questions about whether AIG will survive, and I think that the market may eventually come to the conclusion that the company is worth considerably more than it's valued at today.

Sticking with the insurance sector, Argo is an insurer that I like decidedly more than AIG. Argo focuses on specialized insurance -- that is, offering insurance for customers like day-care centers, restaurants, lawyers, architects, grocers, and mining companies as opposed to the larger, more well-known consumer auto or health markets. But why do we find Argo at such a low valuation? It's a combination of low yields on fixed income investments -- which insurers rely on for income -- and the huge losses that property and casualty insurers took in 2011 from disasters like the earthquake and tsunami in Japan. Last year wasn't a pretty one for Argo, but I think the current valuation has sunk a bit too far.

As with AIG, DryShips is another stock that I'm pained to include here. However, once again, I have to be realistic. I don't love the company, and my fellow Fools have said plenty about why investors might not want to trust the company's management. At the same time, while I keep getting lured toward the low valuations at dry bulk shippers, my CAPS portfolio has been nothing but hurt for thumbs ups in that sector. That said, DryShips isn't just a dry bulk play -- it also owns roughly three-quarters of the recently spun-off offshore driller Ocean Rig (NAS: ORIG) , and I don't think the market is giving DryShips' stock enough credit for that ownership stake.

Finally, while vacation time-shares may not be the wave of the future, due to the current lack of excitement over time-share companies, bargain hunters may have been given the opportunity to grab shares of Marriott Vacations at a nice price after Marriott International spun it off last year. That's not to say it's without risks. The bulk of Marriott Vacation's balance sheet is notes receivable and inventory -- that is, financing provided to buyers that could be defaulted on and properties that could fall in value. However, I think today's price gives investors ample cushion against the risks.

Are you in?
All of these stocks have been added to a list of potential buys for my personal portfolio. I've also given them all a thumbs-up in my Motley Fool CAPS account so readers can keep me honest by checking up on how my calls perform.

Of course, just because I'm willing to get my hands dirty in the bargain bin doesn't mean that you'll be wowed by these beaten-down stocks. If none of the stocks above catch your fancy, you can find a bunch of much higher quality, dividend-paying companies in The Motley Fool's special report: "Secure Your Future With 11 Rock-Solid Dividend Stocks." You can grab a free copy by clicking here.

At the time thisarticle was published Motley Fool newsletter services have recommended buying shares of Sysco. Try any of our Foolish newsletter services free for 30 days. 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.Fool contributor Matt Koppenheffer owns shares of Sysco, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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