Markets
GPI

How to Find Value Stocks Using the Price-to-Book Ratio

Market charts plus calculator

Welcome to Episode #27 of the Value Investor Podcast

Every week, Zacks value stock strategist and the Editor of Zacks Value Investor portfolio service, Tracey Ryniec, talks about all things happening in the value stock universe, including her top stock picks.

In 2017, she has covered several different ways to find value stocks including using the PEG ratio and the Price-to-Sales ratio. This week, Tracey looks into the price-to-book ratio.

The P/B ratio is often one investors overlook. Tracey discusses what the P/B ratio is and why a value investor would want to use it.

The lower the ratio the more undervalued a company can be. But investors should be cautious in reading too much into the ratio. It works well with companies that have assets on their books but not as well with companies that have a lot of intellectual property like patents or service companies.

Additionally, Tracey discusses why you shouldn't only use the P/B ratio as your screening tool. It doesn't give you a complete picture of the value stocks out there.

That's why she screened with P/B and included the Zacks Rank of #1 (Strong Buy) and #2 (Buy). That means the earnings estimates are rising. Even with the inclusion of the Zacks Rank, she still ended up with over 500 stocks.

In order to bring more value into the screen, she added a P/E under 15 and it gave her a more manageable list.

Looking for a P/B ratio under 3.0 meant that many in her screen were banks. Banks are cheap right now and bank investors like to use P/B, not P/E, as a screen in that industry.

If you're looking for bank stocks that are undervalued, the P/B is one screening method you should definitely keep in your arsenal.

What stocks with P/B ratios under 3.0 caught Tracey's eye?

5 Stocks with Attractive P/B Ratios

  1. Bank of America BAC has a price-to-book ratio of 0.9. Many of the banks are values, despite their recent run-up.
  2. Copa Holdings CPA , the Panamanian airlines, has a price-to-book ratio of 2.3. Tracey likes the airlines and Copa is one of her favorites in the international space.
  3. Goldman Sachs GS has a price-to-book ratio of 1.2. Despite its recent stock run, it has a P/E of just 12. It's cheap.
  4. Group 1 Automotive GPI has a price-to-book of 1.9. Investors should take a look at the auto retailers.
  5. Western Digital WDC has a price-to-book of 1.9 and a forward P/E of just 12.7. It's hard to find a "cheap" tech stock. And it just beat big on earnings.

What else does Tracey think about using the price-to-book ratio to find value stocks?

Find out on this week's podcast.

Did You Miss the Podcast on Price-to-Sales?

If you want to learn some of the other methods Tracey uses to find value stocks, tune into her recent podcast on using the Price-to-Sales ratio to find learn more.

Want more insights from Tracey?

Check out her weekly Value Investor service to receive more in-depth analysis on value companies and see which stocks she thinks are the best bargains now.

Click here to learn more>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Copa Holdings, S.A. (CPA): Free Stock Analysis Report

Western Digital Corporation (WDC): Free Stock Analysis Report

Bank of America Corporation (BAC): Free Stock Analysis Report

Group 1 Automotive, Inc. (GPI): Free Stock Analysis Report

Goldman Sachs Group, Inc. (The) (GS): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

GPI BAC GS CPA WDC

Other Topics

Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More