For Immediate Release
5 Low Price-to-Book Stocks Suitable for Value Investors
The price-to-book (P/B) ratio is widely favored by value investors for identifying low-priced stocks with exceptional returns. The ratio is used to compare a stock’s market value/price to its book value.
The P/B ratio is calculated as below:
P/B ratio = market price per share/book value of equity per share
P/B ratio reflects how many times book value investors are ready to pay for a share. So, if the share price is $10 and the book value of equity is $5, investors are ready to pay two times the book value. Ideally, a P/B value under 1.0 is considered good, indicating a potentially undervalued stock. However, value investors often consider stocks with a P/B value under 3.0.
The P/B ratio helps to identify low-priced stocks that have high growth prospects. BorgWarner, Phillips 66, The GEO Group, Patrick Industries and Ford Motor Co. are some such stocks.
Now let us understand the concept of book value.
What’s Book Value?
Book value is the total value that would be left over, according to the company’s balance sheet, if it goes bankrupt immediately. In other words, this is what shareholders would theoretically receive if a company liquidates all its assets after paying off all its liabilities.
It is calculated by subtracting total liabilities from the total assets of a company. In most cases, this equates to the common stockholders’ equity on the balance sheet. However, depending on the company’s balance sheet, intangible assets should also be subtracted from the total assets to determine book value.
Understanding P/B Ratio
By comparing the book value of equity to its market price, we get an idea of whether a company is under-or overpriced. However, like P/E or P/S ratio, it is always better to compare P/B ratios within industries.
A P/B ratio of less than one means that the stock is trading at less than its book value, or the stock is undervalued and, therefore a good buy. Conversely, a stock with a ratio greater than one can be interpreted as being overvalued or relatively expensive.
For example, a stock with a P/B ratio of 2 means that we pay $2 for every $1 of book value. Thus, the higher the P/B, the more expensive the stock.
But there is a caveat. A P/B ratio of less than one can also mean that the company is earning weak or even negative returns on its assets or that the assets are overstated, in which case the stock should be shunned because it may be destroying shareholder value. Conversely, the stock’s price may be significantly high — thereby pushing the P/B ratio to more than one — in the likely case that it has become a takeover target, a good enough reason to own the stock.
Moreover, the P/B ratio isn't without limitations. It is useful for businesses — like finance, investments, insurance, and banking or manufacturing companies — with many liquid/tangible assets on the books. However, it can be misleading for firms with significant R&D expenditure, high debt, service companies, or those with negative earnings.
In any case, the ratio is not particularly relevant as a standalone number. One should analyze other ratios like P/E, P/S, and debt to equity before arriving at a reasonable investment decision.
Here are our five picks out of the 11 stocks that qualified the screening:
Phillips 66’s operations incorporate refining, midstream, marketing and specialties, and chemicals. Phillips 66 is the leading player in each of its operations like refining, chemicals and midstream in terms of size, efficiency and strength.
Phillips 66 has a Zacks Rank #2 and a Value Score of A. Phillips 66 has a projected 3–5 year EPS growth rate of 12.27%. You can see the complete list of today’s Zacks #1 Rank stocks here.
BorgWarner is a global leader in clean and efficient technology solutions. BorgWarner’s largest customers include Volkswagen and Ford. BWA’s production and technical facilities are spread over 64 locations in 17 countries.
BorgWarner has a projected 3–5-year EPS growth rate of 26.84%. BWA currently has a Zacks Rank #2 and a Value Score of A.
The GEO Group is an equity real estate investment trust. GEO specializes in the design, development, financing and operation of correctional, detention and community re-entry facilities.
The GEO Group has a projected 3-5 year EPS growth rate of 10.0%. The GEO Group currently has a Zacks Rank #2 and a Value Score of A.
Patrick Industries is a major manufacturer of component products and distributor of building products and materials for the Recreational Vehicle, Manufactured Housing and Marine industries. Patrick Industries also supplies many of its products to certain industrial markets. These include customers in the kitchen cabinet, office and household furniture, fixtures and commercial furnishings and other industrial markets.
PATK has a projected 3-5 year EPS growth rate of 8.53%. Patrick Industries currently has a Zacks Rank #2 and a Value Score of A.
Ford Motor Company designs, manufactures, markets and services cars, trucks, sport utility vehicles, electrified vehicles, and Lincoln luxury vehicles. Apart from vehicles, the company provides financial services through Ford Motor Credit Company.
Ford Motor Company has a projected 3-5-year EPS growth rate of 8.31%. Ford Motor currently has a Zacks Rank #2 and a Value Score of A.
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For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1982510/5-low-price-to-book-stocks-suitable-for-value-investors
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