Braemar Shipping Services (LSE: BMS), Haynes Publishing (LSE: HYNS) and Robinson (LSE: RBN) have P/Es lower than the FTSE 100.
Let me start by saying FTSE 100 (UKX) index trackers can be great investments for many people. Such trackers can capture the performance of the benchmark index at low cost and give an easy opportunity to enjoy the potential future power of the stock market -- without the worry of individual stock-picking.
In fact, now does not look to be a bad time to back the market through an exchange-traded fund such as the HSBC FTSE 100 (LSE: HUKX). Standing at 5,693, the blue-chip index currently trades at a price-to-earnings (P/E) ratio of 10.2 -- a multiple that is well below the average of 15 seen since the start of 2000.
That said, there are always shares that look even better value than the FTSE 100 -- and I'm always scouring the market for low-P/E bargains that offer the chance of a 're-rating' and could beat a tracker by a healthy margin. Here are three names I believe should outperform over time:
1: Braemar Shipping Services (337.7p/£73m mkt cap)
Fully-listed Braemar Shipping Services (LSE: BMS) looks a cash-rich bargain for investors searching for a generous yield combined with a low P/E.
Shares in this small cap ship-broker and provider of support services for ship-owners, shipbuilders and the energy industry hit a recent peak of 420p in March, but have slipped back along with macroeconomic confidence. This looks like a longer-term opportunity.
At this price, the shares are on a prospective and historic yield of close to 7.7%, and an anticipated P/E of 9.5 for the current year, which is lower still looking forward or back.
The dividend is covered 1.5 times by earnings and cash-flow and the shipping specialist has previously proven its ability to steer a prudent course through stormy financial waters. Over recent years, an increase in shipping capacity has led to lower rates and, therefore, commission. And the company has said shipping markets are likely to feel the effects of the tonnage surplus for a few years yet. But Braemar is making progress in diversifying its marine interests into areas less geared to the shipping market cycle via acquisitions.
Meanwhile, net cash of over 80p per share and net tangible assets of half the value of the company are further reason for confidence in this high yielder.
2: Haynes Publishing (175p/£12m mkt cap)
It's difficult to see much growth coming at Haynes Publishing (LSE: HYNS), but at 175p, with net tangible assets (NTAV) of around twice the share price, it doesn't really need to.
The fully listed car manuals producer has changed gear of late into electronic publishing. Haynes is expected to pay 16p in dividends for the current year, a smidgeon more than last year meaning the shares are yielding a whopping 8.8% at a buy price of 180p. Clearly, this is too high; so can the company keep it up? I think it can.
Yes, the latest trading update spoke of some of the most challenging trading conditions in Haynes' 50 year history. But this is already in the depressed share price which was well over twice its current level just a year ago.
The company thinks the shift to digital publishing will help it grow. Meanwhile earnings looking forward or back place the shares on a P/E of less than six.
Furthermore, the Haynes family own a decent chunk of the shares (but not too many to worry about de-listing) and the founder, John Haynes, is the chairman. With such a stake in the business, the Haynes family will do whatever is necessary to preserve value.
3: Robinson (102p/£16.26m mkt cap)
AIM-listed Robinson (LSE: RBN) makes injection-moulded plastic packaging for global food and toiletry brands for customers such as Proctor & Gamble, Nestle, Kraft and United Biscuits. In other words, its business is quite defensive, so demand should hold up whatever the economy throws at it.
Based in Chesterfield, with two manufacturing facilities in Nottinghamshire and another in Poland, and employing 225 people, Robinson was originally a family business and still has family members as major shareholders and directors.
At 102p, the shares are trading on an expected P/E of 7.4 for 2013, and are expected to yield close to 4%.
The final results for 2011 were very encouraging. Earnings per share for continuing operations came in at 11.9p as the company focused on more profitable areas. Better yet, NTAV per share of over 140p should prove to be higher in reality. Robinson has surplus properties in excess of their carrying value which it will dispose of when property market conditions improve.
What now?
Of course, there are never any guarantees with individual shares and selecting companies outside the FTSE 100 generally carry more risk than buying a standard tracker. However, I feel trawling the market, studying annual reports and assessing valuations can pinpoint potential index-trouncing winners.
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> David owns shares in Robinson. He doesn't own shares in Braemar Shipping Services or Haynes Publishing.
