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Finding Value in the P/B Ratio

In reference to the eight stocks selected by a price/book screen, the first four stocks were evaluated by a mathematical model which this writter spent 10 years developing.

The model predicts the stock's price in three month's time based on selected comp0any fundamentals and change in interest rates. The model does not include major upswings (current market) or downswings (recent history) or any of the risk factors which would be listed in a company's annual report. Not withstanding these exclusions, the mathematical model works quite well as any investor who reads this blog can determine by comparing the prices of these stocks on the evaluation date to the price three months later. Well - not quite. Sometimes the predicted price is attained in six weeks and sometimes as long as five months.

Here are the three month results of the mathematical model based on an initial evaluation date of August 6, 2008.

CBS Corp: $16.70 up to $19.14
Lehman Brothers: $20.46 up to $24.10
Capital One Financial: $45.01 with a negligible change to $45.79
American Capital: $22.54 up to $26.08

To rate these stocks there are three winners and one loser. From my personal perspective American Capital is a winner based on dividend alone. The other stocks would be passed over in favor of stocks with greater potential for appreciation.

To rate the price/book screen as a tool for selecting stocks without the advantage of the above described mathematical model, a realistic evaluation would require the comparison of prices over a period of time.
Skipjack
Disclosure: Author is long ACAS