I want to talk to you about an incredible stock trading at a massive value.
The company has a Piotroski F score of 8. That means it’s well-run with a key focus on shareholder value.
Margins are very strong – with double-digit operating margin levels. Its price-to-earnings sits under 3, which is paltry.
Its EV-to-EBIT is now at nearly 5, making it an attractive takeover target. It trades at .51 book value and .52 tangible book value. (That’s right, it’s 51 cents on the dollar).
And its Tactical Wealth Score is just 0.23.
This company is trading well below the sum of its parts.
It sounds like a screaming buy… doesn’t it?
It should… but I bet you won’t buy it.
Why? Because you probably don’t have the guts.
In about 20 seconds, I bet you talk yourself out of this deep-value stock. And that’s quite a shame.
It’s a great long-term play.
Your Bias Is Showing
Today, I want to talk about behavioral finance and its psychology.
First, I want to explain the basic definition of cognitive bias.
This is a pattern of mental thinking that deviates from reality and objectivity in your judgment. There are plenty of mental heuristics that people use to process information.
Bias is influenced by everything around you. Your emotions. Your social pressures. Your past experience. Your education. All of these things tell you what to do even if there is a flaw in that judgment.
Regarding cognitive bias, you might have too much or too little confidence. You might experience confirmation bias based on other forms of information that you’ve processed in the past.
You might think too much about negative consequences in the short term and even fear the ideas despite the very rational reasons that you should do something.
So far, you’ve heard about a great investment. It’s run by good management. It’s trading at a steep discount to the sum of its parts. It’s a potential takeover target. The shareholders would still make money if the company went out of business tomorrow.
The book value of the stock is $31.85.
Yet it trades for only $15.75.
So What Gives?
It operates in an industry that’s a bit under pressure – largely from the uptick of interest rates over the last two years.
However, one of its most important inputs – a very common commodity – is down 76% over the last 20 months.
The company operates in a very strategically critical part of the U.S. economy. In fact, the government heavily subsidizes this industry because of its critical influence on GDP, meaning there will always be money flowing into its success.
It also largely operates in the Sun Belt – where the U.S. population continues to grow at a frantic pace. So, we can anticipate a large amount of demand in the years ahead.
And despite pressures in this industry over the last year, there’s remarkable demand for its products.
In fact, there is a four-million-figure gap between the amount of product demanded today across their industry and the amount that is actually available.
Despite all of the positive factors, despite the deep value offered in this stock… despite all of the unique upside once its industry recovers… I bet you read the next line and think: “Nope.”
The company is Beazer Homes (BZH), the 11th largest homebuilder in the United States.
Did something in the back of your mind just tell you to avoid this stock? Did the recent hike in interest rates or concerns about the U.S. economy make you jump back and think, “No, thank you.”
That’s the very type of bias that I’m talking about.
The stock has largely priced in a dramatic downturn in housing this year, but it has stormed back nearly 75% since its October lows.
And while there is a possibility that this stock could pull back again – say it with me…
It’s trading at less than the sum of its parts – and we’re waiting for a long-term reversion that takes this stock much, much higher.
It’s an investment – and it should be treated like such.
Now, if you’re still biased against BZH, I understand.
But let me tell you that there is an incredible opportunity, value, and yield in great companies that make things we need.
Even in the face of recession, companies with strong balance sheets, low debt, and cheap valuations are great “buy and holds” – especially in sectors of need in this economy.
This week, I’m unveiling the newest member of the Tactical Wealth Investor Income Portfolio – and I’m tapping into a stock that is worth well less than the sum of its parts and pays a very attractive dividend that will crush inflation moving forward.
You can join us – at a deep discount – right here.
To your wealth,
Garrett Baldwin
Market Momentum is Red
And just like that, the market has turned negative. We had a short-term pop that carried us higher again last week, and a rug-pulling selloff that pushed us negative. What a move…
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
