P/B is calculated as share price divided by book value per share. Book value is most often calculated as Assets less Liabilities (Equity). However, some people conservatively calculate book value as Assets less Intangibles less Liabilities. I prefer the latter since it excludes goodwill and other intangibles which would be difficult to recover in a liquidation, and that is what I used in the calculations below.
A low P/B ratio could indicate a stock is undervalued or distressed. Since GAAP accounting is mostly based on historical cost, a viable growing company will normally be worth more than its book value. However, there are times when good companies will be punished along with the bad. It is our job as investors to separate the good companies from those that have fundamental problems.
Below are several select companies with a P/B below 2.0 for your consideration:
Aflac Incorporated (AFL) provides supplemental health and life insurance in Japan and the U.S. Products are marketed at work sites and help fill gaps in primary coverage.
P/B: 1.35 | Yield: 2.3%
Wells Fargo & Company (WFC), with March 31 assets of $1.85 trillion, is the fourth largest U.S. bank, by global assets, but has the largest U.S. lending footprint.
P/B: 1.69 | Yield: 2.9%
Consolidated Edison, Inc. (ED) is an electric and gas utility holding company serves parts of New York, New Jersey and Pennsylvania.
P/B: 1.77 | Yield: 3.5%
Chevron Corporation (CVX) is a global integrated oil company (formerly ChevronTexaco) has interests in exploration, production, refining and marketing, and petrochemicals.
P/B: 1.41 | Yield: 4.0%
Main Street Capital Corporation (MAIN) is a business development company specializing in equity, equity related, and debt investments in small and lower middle market companies.
P/B: 1.66 | Yield: 5.8%
P/B is like yield, when it is at an extreme you have to question why it is there. If you determine it is the result of an irrational market movement, a purchase could result in both a higher yield and significant future capital appreciation.
Full Disclosure: Long AFL, ED, CVX, MAIN. See a list of all my Dividend Growth Portfolio holdings here.
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(Photo: Steve Woods)
Tags: AFL, WFC, ED, CVX, MAIN,
