Stock Screens

Stock Screen: Using the Price-to-Book Ratio


In our previous stock screen, we returned to basics, with a look at value investing as practiced by one of the masters, Benjamin Graham. The parameters in the last screen included a price-earnings ratio lower than the market, a price-to-sales ratio lower than the market, and a dividend yield higher than the market.

There is one more important and closely watched value metric: the price-to-book value ratio. It represents the recent closing stock price divided by the theoretical dollar amount per common share one might expect to receive from a company's tangible book assets should liquidation take place.

Price-to-book ratios have been studied extensively, with some studies suggesting a low price-to-book can lead to a strong stock price rise in the future.

There are two caveats: What's worked in the past won't necessarily work in the future, and price-to-book generally doesn't measure financial services stocks well because of the nature of the financial services business.

For this week's screen, we searched for stocks with a price-to-book ratio lower than 1. (The market average is 1.5.) We eliminated financial services stocks as well as any stock with an S&P investment ranking of 3 STARS (hold) or lower.

There were 23 stocks returned by the screen, each with an S&P investment ranking of 4 STARS (buy) or 5 STARS (strong buy).

Company Ticker S&P STARS Rank (2/5/09)

Akamai Technologies AKAM 4

Arkansas Best ABFS 4

Chesapeake Energy CHK 4

Cimarex Energy XEC 4

D.R. Horton DHI 4

Dynegy DYN 4

GulfMark Offshore GLF 5

International Paper IP 4

Mariner Energy ME 4

Mirant MIR 4

National Retail Properties NNN 4

Neenah Paper NP 4

Office Depot ODP 4

OfficeMax OMX 4

Plains Exploration & Production PXP 4

Pride International PDE 4

Pulte Homes PHM 4

Red Robin Gourmet Burgers RRGB 5

Southwest Airlines LUV 4

Toll Brothers TOL 4

Tsakos Energy Navigation TNP 4

USG USG 4

Valero Energy VLO 4

Piskora is managing editor of U.S. Editorial Operations for Standard & Poor's .

All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure

Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.


Too Cool for Crisis Management
LIMITED-TIME OFFER SUBSCRIBE NOW

Sponsored Financial Commentaries

Sponsored Links

Buy a link now!

 
blog comments powered by Disqus