In an ideal world, the entire basket of U.S. stocks would be arranged in terms of the value they represent. The most richly-valued stocks would be obvious sell candidates, and the most inexpensive stocks would all be bought up. 

But that’s not how the market works.

#-ad_banner-#From day to day, overvalued stocks can climb yet higher, while undervalued stocks can fall and fall. Some of them fall so much that they move far below any logical, rational level. I’m talking about stocks that are valued well below the tangible book value that can be found on the company’s balance sheet.

These stocks can stay “below book” for awhile, as many stocks did throughout 2002 and again in 2009. But eventually logic prevails. 

Well, 2012 brings us another trove of “below book” value plays. I found more than 100 companies out of the 1,500 that are in the S&P 400, 500 and 600 that trade below tangible book value.

To narrow the list, I am looking at stocks that trade for less than 80% of tangible book, have seen their book value rise in each of the past three years (meaning they are actually adding value to the company), and should see book value rise even more in 2012 and 2013 because they are expected to remain profitable.

I found 20 stocks that fit the bill, and fully half of them are insurers.

Why are these insurance stocks so cheap? Because interest rates are so low and they can’t generate their historical levels of profit margins. Still, all of these insurers saw book value rise, even in the last downturn, and should keep raising book value as expected profits fatten up the balance sheet even more.

You’ll find another 10 deeply undervalued stocks in this table.

I’ve got two personal favorites here. The first is tech distributor Ingram Micro (NYSE: IM), which will admittedly never be a richly-valued stock due to its low growth and skimpy profit margins. This stock has often traded between 95% and 100% of tangible book value, however, which is why it’s so appealing right now. A move back the midpoint of that range implies roughly 25% upside, and that low book value measure implies little downside. Moreover, analysts expect Ingram Micro to earn roughly $4 a share over the next 24 months, implying that tangible book value may end up around $25 a share by the end of 2013. 

The forgotten upstart
A decade ago, consumers were buzzing about a new airline service called JetBlue (Nasdaq: JBLU). Consumers gave the carrier very high marks, and investors loved the fact that it had a brand new fleet of fuel-efficient airplanes. Back in 2003, this was one of the hottest stocks in the market, briefly touching $30. These days, the stock is down to $5.

What went wrong? In a nutshell, other carriers improved their operations, closing the gaps of operational efficiency and customer loyalty. And those new JetBlue planes are now a bit older and now require more maintenance than before. Still, the stock doesn’t deserve to be THIS cheap. Investors are overlooking the fact that JetBlue has never generated an operating loss in its history, has a strong presence in the coveted Eastern seaboard, and is still in growth mode. Sales are expected to rise 7% in 2013, while earnings are expected to rise 25% to around $0.70 per share. Not bad for a $5 stock.

A still-strong brand, lean cost structure and valuable set of assets is why some have speculated JetBlue will end up as takeout fodder in an industry that continues to consolidate. Regardless, trading well below tangible book value, it’s hard to see how shares can fall much further from here. 

Risks to Consider: Even as investors have few reasons to sell these deep value stocks, it may take a firmer economy before buyers step in.

Action to Take –> You should look into this list further. Even as these stocks offer tangible downside protection, they could rebound just as sharply as higher-beta stocks, giving them a nice blend of offensive and defensive characteristics.