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Book Value – Follow up & A New Stock Pick

by SMD 


First off thanks to Darren at ProBlogger for the idea of the “follow up post” [and a ton of other tips].

Now, I want to revisit my post of a couple days ago about buying signals based on a company’s book value. When I posted that one on May 2, VSM.to [the stock that inspired the story] was trading at .46.

This morning while checking my watch list, I noticed it was .67. That’s a cool 45% in 2 days. Is this kind of move typical for value style investing? Sorry, but no. Usually value investing requires the patience to wait for the market to discover that your company is undervalued.

Another reason I wanted to post a follow up was that I just picked up this month’s [April/May 2005]  MoneySense magazine and they have a pretty good article about investing based on book value written by Irwin Michael. In it he takes the book value concept one step farther by removing non-cash assets such as goodwill from the equation. He calls the result “tangible book value”.

The article goes on to recommend a look at Laurentian Bank [LB.to]. Currently trading at about $27cdn with a tangible book value of $29 and even a decent yield at ~ 4.5%.

He then presents some other interesting reasons for liking LB: recent wise management decisions to focus on LB’s core strengths [divest themselves of branches outside of Quebec], and if there are any bank mergers or takeovers on the horizon in Canada, LB would be a prime candidate.

After a little digging I came up with a couple of my own reasons to like LB. These include a hip website [Hands up anyone who is just waiting for a bank to stop acting like...well...a bank]. In addition, another thing that I like is the innovative idea of holding public design competitions for the banks interior and exterior makeovers.

Jon, you may ask, what the hell do a cool website and design competitions have to do with investing? Well I have a theory…a spin on the ‘buy what you know’ theory…but that’s a different topic.

In the meantime, I’m going to pick up a few shares of LB for my own portfolio.

Disclaimer: Smart Money Daily is only a discussion of money and investment issues. Nothing on this site is meant to be construed as investment advice. Please be aware of, and take responsibility for, the risks of your investing.

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