For Immediate Release
Chicago, IL – March 30, 2022 – Stocks in this week’s article are Celestica CLS, ASE Technology Holding ASX, Harley-Davidson HOG, Teck Resources Ltd. TECK and Hillenbrand HI.
Buy These 5 Low Price-to-Book-Value Stocks for Solid Returns
Value investors prefer price to earnings (P/E) and price to sales (P/S) ratios for identifying low-priced stocks with exceptional returns. However, the underrated price-to-book ratio (P/B ratio) is also an easy-to-use valuation tool for the purpose. 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 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. Celestica, ASE Technology Holding, Harley-Davidson, Teck Resources Ltd. and Hillenbrand are some such picks.
Now let us understand the concept of book value.
What's Book Value?
There are several ways by which book value can be defined. 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 common stockholders' equity on the balance sheet. However, depending on the company's balance sheet, intangible assets should also be subtracted from 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 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 18 stocks that qualified the screening:
Celestica is one of the largest electronics manufacturing services companies in the world, serving the computer and communications sectors.
Celestica has a Zacks Rank #1 and a Value Score of A. Celestica has a projected 3-5 year EPS growth rate of 14.5%.
You can see the complete list of today's Zacks #1 Rank stocks here.
ASE Technology Holding is a provider of semiconductor manufacturing services in assembly and testing.
ASE Technology Holding has a projected 3-5 year EPS growth rate of 26.9%. ASE Technology Holding currently has a Zacks Rank #2 and a Value Score of A.
Teck Resources Limited is a diversified resource company committed to mining and mineral development with business units focused on steelmaking coal, copper, zinc and energy.
Teck Resources has a projected 3-5 year EPS growth rate of 38.7%. TECK currently has a Zacks Rank #2 and a Value Score of A.
Harley-Davidson is one of the leading motorcycle makers in the world. It is the parent entity of company groups doing business as Harley-Davidson Motor Company and Harley-Davidson Financial Services.
Harley-Davidson has a projected 3-5 year EPS growth rate of 46.4%. TECK currently has a Zacks Rank #1 and a Value Score of A.
Hillenbrand is a global diversified industrial company with multiple market-leading brands that serve a wide variety of industries across the globe. Hillenbrand's portfolio comprises two business segments: the Process Equipment Group and Batesville.
Hillenbrand has a projected 3-5 year EPS growth rate of 12%. Hillenbrand 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/1888921/buy-these-5-low-price-to-book-value-stocks-for-solid-returns
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report HarleyDavidson, Inc. (HOG) : Free Stock Analysis Report Celestica, Inc. (CLS) : Free Stock Analysis Report ASE Technology Holding Co., Ltd. (ASX) : Free Stock Analysis Report Hillenbrand Inc (HI) : Free Stock Analysis Report Teck Resources Ltd (TECK) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research