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5 Low Price-to-Book Stocks to Add to Your Portfolio
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When evaluating a company’s value, investors mostly look at a stock’s Price-to-earnings (P/E) or Price-to-Sales (P/S) ratio. While P/E is the ratio of annual earnings to stock price, P/S reflects the amount investors pay for each dollar of revenues generated by the company.
Though P/E and P/S valuation tools are more commonly used for stock selection, the price-to-book ratio (P/B ratio) is also an easy-to-use metric for identifying low-priced stocks with high-growth prospects.
P/B is the ratio of stock price to book value.
It is calculated as below:
P/B ratio = market capitalization/book value of equity
The P/B ratio helps to identify low-priced stocks that have high growth prospects. Deutsche Bank (DB - Free Report) , General Motors (GM - Free Report) , Unum Group (UNM - Free Report) , Park Hotels & Resorts (PK - Free Report) and Sterling Infrastructure (STRL - Free Report) 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.
Screening Parameters
Price to Book (common Equity) less than X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.
Price to Sales less than X-Industry Median: The P/S ratio determines how much the market values every dollar of the company’s sales/revenues — a lower ratio than the industry makes the stock attractive.
Price to Earnings using F(1) estimate less than X-Industry Median: The P/E ratio (F1) values a company based on its current share price relative to its estimated earnings per share — a lower ratio than the industry is considered better.
PEG less than 1: PEG links the P/E ratio to the future growth rate of the company. The PEG ratio portrays a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and investors need to pay less for a stock that has bright earnings growth prospects.
Current Price greater than or equal to $5: They must all be trading at a minimum of $5 or higher.
Average 20-Day Volume greater than or equal to 100,000: A substantial trading volume ensures that the stock is easily tradable.
Zacks Rank less than or equal to #2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
Value Score equal to A or B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best opportunities in the value investing space.
Here are our five picks out of the 10 stocks that qualified the screening:
Headquartered in Frankfurt am Main, Deutsche Bank Aktiengesellschaft, also called Deutsche Bank AG, is the largest bank in Germany and one of the largest financial institutions in Europe and the world, as measured by total assets.
DB has a projected 3–5 year EPS growth rate of 6.53%.
General Motors is one of the world’s largest automakers. Headquartered in Detroit, the auto giant held the largest share of the U.S. auto market at 17.09% in 2022. From going bankrupt in 2009 to becoming one of the world’s best-run car companies, General Motors has indeed come a long way.
General Motors has a Zacks Rank #2 and a Value Score of A. The company has a projected 3-5-year EPS growth rate of 9.9%.
Headquartered in Chattanooga, TN, Unum Group was created following the June 1999 merger of Provident Companies, Inc. and Unum Corporation. Along with disability insurance, the company provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services.
Unum Group has a projected 3–5-year EPS growth rate of 8.10%. UNM currently has a Zacks Rank #2 and a Value Score of A.
Park Hotels & Resorts is a lodging real estate company. It operates luxury hotels and resorts in the United States and the international market.
Park Hotels & Resorts has a Zacks Rank #2 and a Value Score of A. PK has a projected 3–5 year EPS growth rate of 9.73%.
Sterling Infrastructure operates through subsidiaries within segments specializing in E-Infrastructure, Building and Transportation Solutions. E-Infrastructure Solutions projects develop advanced, large-scale site development systems and services for data centers, e-commerce distribution centers, warehousing, transportation, energy and more. Building Solutions projects include residential and commercial concrete foundations for single-family and multi-family homes,parking structures, elevated slabs and other concrete work. Transportation Solutions includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, light rail, water, wastewater and storm drainage systems.
Sterling Infrastructure has a projected 3-5-year EPS growth rate of 18%. Sterling Infrastructure currently has a Zacks Rank #2 and a Value Score of A.
Get the rest of the stocks on the list and startputting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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5 Low Price-to-Book Stocks to Add to Your Portfolio
When evaluating a company’s value, investors mostly look at a stock’s Price-to-earnings (P/E) or Price-to-Sales (P/S) ratio. While P/E is the ratio of annual earnings to stock price, P/S reflects the amount investors pay for each dollar of revenues generated by the company.
Though P/E and P/S valuation tools are more commonly used for stock selection, the price-to-book ratio (P/B ratio) is also an easy-to-use metric for identifying low-priced stocks with high-growth prospects.
P/B is the ratio of stock price to book value.
It is calculated as below:
P/B ratio = market capitalization/book value of equity
The P/B ratio helps to identify low-priced stocks that have high growth prospects. Deutsche Bank (DB - Free Report) , General Motors (GM - Free Report) , Unum Group (UNM - Free Report) , Park Hotels & Resorts (PK - Free Report) and Sterling Infrastructure (STRL - Free Report) 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.
Screening Parameters
Price to Book (common Equity) less than X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.
Price to Sales less than X-Industry Median: The P/S ratio determines how much the market values every dollar of the company’s sales/revenues — a lower ratio than the industry makes the stock attractive.
Price to Earnings using F(1) estimate less than X-Industry Median: The P/E ratio (F1) values a company based on its current share price relative to its estimated earnings per share — a lower ratio than the industry is considered better.
PEG less than 1: PEG links the P/E ratio to the future growth rate of the company. The PEG ratio portrays a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and investors need to pay less for a stock that has bright earnings growth prospects.
Current Price greater than or equal to $5: They must all be trading at a minimum of $5 or higher.
Average 20-Day Volume greater than or equal to 100,000: A substantial trading volume ensures that the stock is easily tradable.
Zacks Rank less than or equal to #2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
Value Score equal to A or B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best opportunities in the value investing space.
Here are our five picks out of the 10 stocks that qualified the screening:
Headquartered in Frankfurt am Main, Deutsche Bank Aktiengesellschaft, also called Deutsche Bank AG, is the largest bank in Germany and one of the largest financial institutions in Europe and the world, as measured by total assets.
Deutsche Bank has a Zacks Rank #1 and a Value Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
DB has a projected 3–5 year EPS growth rate of 6.53%.
General Motors is one of the world’s largest automakers. Headquartered in Detroit, the auto giant held the largest share of the U.S. auto market at 17.09% in 2022. From going bankrupt in 2009 to becoming one of the world’s best-run car companies, General Motors has indeed come a long way.
General Motors has a Zacks Rank #2 and a Value Score of A. The company has a projected 3-5-year EPS growth rate of 9.9%.
Headquartered in Chattanooga, TN, Unum Group was created following the June 1999 merger of Provident Companies, Inc. and Unum Corporation. Along with disability insurance, the company provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services.
Unum Group has a projected 3–5-year EPS growth rate of 8.10%. UNM currently has a Zacks Rank #2 and a Value Score of A.
Park Hotels & Resorts is a lodging real estate company. It operates luxury hotels and resorts in the United States and the international market.
Park Hotels & Resorts has a Zacks Rank #2 and a Value Score of A. PK has a projected 3–5 year EPS growth rate of 9.73%.
Sterling Infrastructure operates through subsidiaries within segments specializing in E-Infrastructure, Building and Transportation Solutions. E-Infrastructure Solutions projects develop advanced, large-scale site development systems and services for data centers, e-commerce distribution centers, warehousing, transportation, energy and more. Building Solutions projects include residential and commercial concrete foundations for single-family and multi-family homes,parking structures, elevated slabs and other concrete work. Transportation Solutions includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, light rail, water, wastewater and storm drainage systems.
Sterling Infrastructure has a projected 3-5-year EPS growth rate of 18%. Sterling Infrastructure currently has a Zacks Rank #2 and a Value Score of A.
Get the rest of the stocks on the list and startputting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance