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10 Tangible Book Value Bargains With Large Upside Potential

Companies that trade at a discount to tangible book value typically either offer strong downside protection due to the value of the underlying assets, or offer little downside protection due to a highly leveraged balance sheet.

While investors should strongly prefer the former types of companies, sometimes leverage may be acceptable if other factors make it likely that equity value will not be impaired. For example, companies with large insider ownership are more likely to fight for the preservation of shareholder value in a distressed situation, than are companies with disinterested management.

Similarly, sometimes ownership of the equity by well-informed investors (e.g., John Fredriksen's ownership of TORM ) can signal that equity value may not be impaired in the long term, despite the current state of distress (e.g., David Einhorn's ownership of Republic Airways ( RJET )).

The following list includes both companies that have little financial leverage, as well as those that have substantial leverage. The common thread is an equity valuation below one times tangible book value and our judgment that large equity upside potential exists in the long term if equity value is preserved in the short term.

We have looked for businesses that are not only cheap on book value, but also have substantial normalized earning power. Ideally, a company will have lots of value on the balance sheet but also one or more businesses that are not capital-intensive, adding going-concern value above and beyond the assets on the balance sheet. Here are ten companies that are cheap on tangible book and appear to have material stock price upside:

Republic Airways ($4.60 per share; MV $222 million; EV $2.5 billion), based in Indianapolis, IN, operates two business models: a fixed-fee code-share model with predictable operating margins (key partners are American ( AMR ), Continental ( UAL ), Delta ( DAL ), United ( UAUA ), and US Airways ( LCC )), and a branded airline model via Denver-based subsidiary Frontier ( FRNT ).

The operational fleet of airplanes declined 5% from 290 at the end of 2009 to 275 at yearend 2010. Analysts expect Republic to lose $0.13 per share in 2011, followed by EPS of $0.47 (10x P/E) and $1.10 (4x) in subsequent years. The company trades at 0.5x tangible book value of $449 million.

Republic has been a long-time holding of superinvestor David Einhorn. While some holders of Republic were hoping the company would buy back shares at some point, the company did the opposite in November when it issued 12 million shares at $7.80 per share. While the equity raise suggested that Republic's financial situation was a bit more tenuous than some longs had believed, the equity raise was accretive in hindsight (due to Republic's recent trading price well below $7.80 per share).

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Standard shipping rates are charged according to the total amount shipped to a single address. Rates begin at $9.95 for up to $75 worth of merchandise and top out at $19.95 for purchases of $200 and up.

In-stock items usually ship within 24 hours after you place your order and arrive within seven to 10 days, unless you select a faster shipping method.

Expedited Delivery Coldwater Creek's expedited shipping will add $12.95 to your standard shipping charge and the product will arrive in three business days. For delivery to Alaska or Hawaii, you'll be charged $14.95, in addition to the standard shipping charge.

Add $24.95 for Next Day Air delivery to the lower 48 states. Overnight delivery is not available for Hawaii or Alaska. You must place orders by 2 p.m. ET to receive next-day delivery. Expedited delivery is not available for P.O. addresses.

Military Address Shipping Coldwater Creek ships to all American military addresses. Simply select "other" in the ship-to box of your shopping cart. At check out, you'll need to type in the recipient's address and select United States. Choose from the following in the drop-down menu: AA (Armed Forces Americas), AE (Armed Forces Europe) and AP (Armed Forces Pacific).

International Shipping Coldwater Creek offers international shipping to Canada, Japan and other countries. International orders can be placed through ColdwaterCreek.com or by using an AT&T operator to call 1-800-510-2808 between 6 a.m. and 3 a.m. ET.

Shipping and handling charges to Canada range from $14.95 for purchases of up to $25 and $49.95 for orders over $250. There may be an additional charge for large or bulky items. You'll receive your purchase within two weeks. All indicated charges are quoted in U.S. funds and Canadian sales tax (GST and HST) will be applied to your purchase.

Orders shipped to Japan will arrive within 10 business days by air postal service. Expedited delivery is not available. Shipping and handling charges per address vary from $20 for purchases up to $99.99 and $85 for orders over $500. Sales tax will not be added to orders in Japan.

Orders shipped to other countries will be delivered in six to eight weeks. Shipping and handling charges per address range from $11.95 for orders of up to $75 and $21.95 for purchases over $200. You may select expedited delivery for an additional $20. Sales tax will not be added to your order.

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