Sometimes business is all about having the patience to wait for the right opportunities, and that means sitting on cash. Realistically, investors aren't always keen on the idea because they want to have capital being put to work by the company. Still, we understand that doing something just for the sake of taking some type of action can lead to poor decision-making. The point is that these companies have accumulated this cash through continual diligence, and now that they're selling for a steep discount this make for a very interesting situation.
The Price/Book Value Ratio is a great price-multiple valuation metric to find companies that may be potentially undervalued or overvalued. If a firm has a Price/Book Value Ratio of less than 1, it is stated to be “trading below break up value." A lower P/BV Ratio can indicate a potentially mispriced company or indicate that something is fundamentally wrong with it.
Return on Assets (ROA) illustrates how much a firm is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the firm’s assets. While most management teams can probably make money by throwing money at an issue, very few can make very large profits with little investment.
We first looked for stocks trading at a cheap valuation (P/BV ratio > 1), which also illustrated sound profitability relative to their asset base (ROA TTM > 10%). From this narrowed list of candidates, we then looked for companies that illustrated bullish momentum by outperforming the SandP 500 over the last month. We did not screen out any sectors or market caps.
The list is ranked from highest to lowest by the P/BV ratio:
1. Advanced Energy Industries, In. (AEIS)
Sector | Technology |
Industry | Electronic Components |
Market Cap | $406M |
Beta | 1.94 |
The company designs and supports complex power conversion and control systems. he company has a P/BV ratio of 0.98 and an ROA (TTM) of 14.09%. AEIS has increased by 7.89% in the last month. The short interest was 7.60% as of 10/14/2011.
2. Leucadia National Corporation. (LUK)
Sector | Industrials |
Industry | Conglomerates |
Market Cap | $6,562M |
Beta | 1.93 |
The company is a conglomerate that operates in a variety of spaces such as manufacturing, real estate, banking, and more. The company has a P/BV ratio of 0.96 and an ROA (TTM) of 21.10%. LUK has increased by 18.30% in the last month. The short interest was 2.30% as of 10/14/2011.
3. Owens-Corning, Inc. (OC)
Sector | Basic Materials |
Industry | Building Materials |
Market Cap | $3,431M |
Beta | 2.44 |
The company produces residential and commercial building materials. The company has a P/BV ratio of 0.92 and an ROA (TTM) of 13.03%. OC has increased by 30.90 % in the last month. The short interest was 5.00% as of 10/14/2011.
4. Giant Interactive Group, Inc. (GA)
Sector | Industrials |
Industry | Business Services |
Market Cap | $895M |
Beta | 0.61 |
The company develops and operates online games in China. The company has a P/BV ratio of 0.89 and an ROA (TTM) of 11.11%. GA has increased by 16.82% in the last month. The short interest was N/A as of 10/14/2011.
5. E.W. Scripps Company. (SSP)
Sector | Consumer Cyclical |
Industry | Publishing |
Market Cap | $478M |
Beta | 2.94 |
The company has a variety of interests in a variety of media outlets and mediums. All of its media businesses provide content and advertising services via the Internet. The company has a P/BV ratio of 0.85 and an ROA (TTM) of 15.77%. SSP has increased by 19.14% in the last month. The short interest was N/A as of 10/14/2011.
6. Patni Computer Systems, Ltd. (PTI)
Sector | Technology |
Industry | Software - Application |
Market Cap | $899M |
Beta | 1.68 |
The company offers information technology services. The company has a P/BV ratio of 0.67 and an ROA (TTM) of 15.26%. PTI has increased by 17.32% in the last month. The short interest was N/A as of 10/14/2011.
7. American Capital Ltd. (ACAS)
Sector | Financial Services |
Industry | Asset Management |
Market Cap | $2,749M |
Beta | 2.84 |
The company is a business development company and offers alternative asset manager. The company has a P/BV ratio of 0.61 and an ROA (TTM) of 15.76%. ACAS has increased by 13.93% in the last month. The short interest was N/A as of 10/14/2011.
8. Trina Solar Limited. (TSL)
Sector | Technology |
Industry | Solar |
Market Cap | $641M |
Beta | 2.99 |
The company offers and manufactures solar-power products based in China. The company has a P/BV ratio of 0.52 and an ROA (TTM) of 14.61%. TSL has increased by 32.73% in the last month. The short interest was N/A as of 10/14/2011.
9. JA Solar Holdings Co., ADR. (JASO)
Sector | Technology |
Industry | Solar |
Market Cap | $376M |
Beta | 3.11 |
The company manufactures of solar cells based in China. The company has a P/BV ratio of 0.34 and an ROA (TTM) of 14.7%. JASO has increased by 24.16% in the last month. The short interest was N/A as of 10/14/2011.
We hope this helps as investors do their own due diligence and research on stocks that hold low price-multiple valuations and strong ROA numbers.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
