Stock Screen: Using the Price-to-Book RatioBeth Piskora
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