Price to Book is a valuation screen that often yields attractive investment opportunities. If a business is selling for less than book value (aka the liquidation value), the business might be under priced by the market. As with any valuation screens, this is just a starting point for further due diligence. Price to Book value can be low for many reasons. Perhaps, the book value is inflated due to intangibles such as goodwill. Or some of the assets may be carried on the books at values that the market currently just can’t support. But some times the price of the shares may genuinely be low, in which case the stock may be an attractive buy.
To run this screen, I went a little more conservative than a straight P/B < 1. In this case, I required that
- Price to Book ratio < 0.7 (as of most recent Fiscal Quarter)
- Price to Earnings ratio < 7
- PE/Growth (PEG) ratio < 0.7
- Market Capitalization > $50 m
- and After Tax Return on Equity (ttm) > 10%
The screen yielded 16 stocks, out of which a selected list of 10 stocks appear below:
|Ticker||Company||P/B Ratio||Market Cap||Industry Sector|
|ABH||AbitibiBowater||0.6||2.58B||Paper & Paper Products|
|AGNC||American Capital Agency Corp||0.67||3.51B||Real Estate Investment Trusts|
|ACAS||American Capital Ltd||0.68||3.4B||Business Development Company|
|BCBP||BCB Bancorp||0.69||105.18M||S&Ls/Savings Banks|
|EXM||Excel Maritime Carriers||0.27||372.9M||Water Transportation|
|FMNB||Farmers National Bancorp||0.56||83.91M||Regional Banks|
|GSX||Gasco Energy||0.58||57.13M||Oil & Gas|
|GNK||Genco Shipping||0.46||373.9M||Water Transportation|
|GBLI||Global Indemnity PLC||0.68||396.27M||Insurance (Prop. & Casualty)|
|RAS||Rait Financial Trust||0.21||254.7M||Real Estate Investment Trusts|
It comes as no surprise that the list is loaded with financials and real estate trusts. So in some sense, some of these stocks are depressed with the economy and should see a rebound as the confidence in real estate and credit markets return. The shipping companies are very dependent on the levels of international trade as well and might be good stocks to keep an eye on.
Disclaimer: Please do your due diligence. This is not a recommendation to buy or sell. The author does not have positions in any of the stocks mentioned as of this writing.