Inexpensive stocks to buy below book value


It is a market of value-driven investors. Despite the recent market recovery, several companies have yet to recoup their pre-pandemic losses. In many cases, these cheap stocks are trading at values ​​not seen in more than a decade.

One of the most popular ways to value a stock is to analyze book value, which is the amount shareholders would theoretically receive if all assets were sold. In general, a price-to-book (P / B) ratio of less than 0.5 is a sign that the business is cheap.

It is best to compare the P / B to historical and sector averages. At the time of writing, the list of companies with a P / N ratio below 0.5 is dominated by energy stocks. There are, however, several non-energy companies that trade at significant discounts to book value.

Inexpensive large-cap stock

While most of the stocks that trade at these cheap valuations are small to mid-sized companies, there is one large cap that stands out: Brookfield Asset Management (TSX: BAM.A) (NYSE: BAM). Brookfield Asset Management is the parent company of the Brookfield family of companies. It is also among the 10 largest Canadian companies in terms of market capitalization.

It’s also the only one that trades at less than half of book value. With a P / B ratio of 0.44, Brookfield Asset Management is still trading at a 16% discount from its February high. Over the past five years, BAM has typically traded around 1.67 times its book value, making BAM a cheap stock today.

It is important to recognize that the entire financial sector has yet to recover significantly from its March lows. As such, there are several great deals in the industry. The industry has a median P / N ratio of 0.87, which means more than half of the industry is currently trading below book value. Once again, however, BAM appears to be among the cheapest stocks in the industry.

A battered insurer

Join Brookfield, Power Corporation of Canada (TSX: POW) is the only other large cap stock listed on the TSX that is currently trading below 0.5 times book value. With a P / B ratio of 0.2, it’s not just the cheapest insurer; it is one of the cheapest stocks on the TSX index.

Power Corp has always traded at a slight discount. However, it is now trading more than five times below its historical five-year average of 1.07 times the book value. The insurance industry is among the cheapest, with a median P / N ratio of 0.76. As interest rates near record lows, investors have all but abandoned the industry.

For its part, Power Corp is down 41% year-to-date, and it’s not so cheap since the financial crisis. This cheap stock is paying a record 9.20%, and with a lasting dividend, it makes great income stock for investors. The industry is much better prepared for a low interest rate environment than it was in 2008-2009 and has significant economic rebound potential.

A utility lagging behind

The last company on the list is surprising – Atco Limited (TSX: ACO.X), which is one of the most trusted income stocks on the TSX index. At 27, she has the fifth longest streak of dividend growth in Canada.

Admittedly, seeing a utility company on the list is somewhat surprising. They have significantly outperformed the index during this pandemic, with the S & P / TSX Capped Utilities Index losing just 6% of its value since the start of the year. At the time of writing, Atco has a P / N ratio of 0.46, which is by far the cheapest P / N ratio in the utilities industry, which has a median P / N ratio of 1.56.

Further underlining its undervaluation, it is trading at a record P / N value ratio. Dating back to 2000, it has not traded below its book value. That is, until this pandemic in which this cheap action is down 32%. I suspect that the company’s underperformance is in large part due to slower growth and exposure to Western Canada.

However, it appears to offer investors one of the best risk-reward ratios and offers an almost record-breaking return of 4.68%.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we post sometimes articles that may not conform to recommendations, rankings or other content.

Foolish contributor Mat Litalien has no position in any of the stocks mentioned. The Motley Fool owns stocks and recommends Brookfield Asset Management. The Motley Fool recommends BROOKFIELD ASSET MANAGEMENT INC. CL.A LV.


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