# 34 Stocks With Over 10% Return On Equity Selling For Less Than Book, Part 1: Basic Materials

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by: Epsilon

A company's price to book ratio (P/B) is a fundamental measure often used by investors to determine the value of the stock in relation to the overall value of the company. A low P/B can indicate that a company's stock is currently undervalued, offering a strong buying opportunity.

The P/B ratio, which compares the market's valuation of a company to the actual book value of a company, is calculated as:

Price to Book (P/B) = Price per Share/Book Value of Equity

A P/B of less than 1 indicates that a company's stock is selling for "less than book"; in other words, the market value of a company, determined by its stock price, is less than its actual worth, as indicated by its book value.

This book value, found on a company's balance sheet, is the difference between the book value of assets (cash, accounts receivable, inventory, equipment, etc.) and the book value of liabilities (loans, accounts payable, mortgages, etc.), represented by the equation:

Assets - Liabilities = Book Value of Equity (or Shareholder's Equity)

As no one indicator should be trusted as a stand-alone measure of a company's or stock's value, one should always consider of the full financial and fundamental picture before investing. With this in mind, though a low P/B can indicate value, it can also indicate that something has fundamentally gone awry. A key growth indicator, when paired with a company's P/B ratio, however, can add validity to any perceived stock price discount, as suggested by a low P/B.

A reliable growth indicator, the measure of how well a company is using reinvested earnings to generate additional earnings, is a company’s return on equity (ROE). ROE measures the amount of net income returned as a percentage of shareholder equity and is calculated as:

Return on Equity (ROE) = Net Income/Shareholder’s Equity

A rising ROE should cause a company's P/B to rise as well. A high ROE paired with a low P/B, therefore, can indicate that a company is profitable but, as shown by the low P/B, the market (investors) have yet to take notice. In short, this can be perceived as a buying opportunity for value investors as the company's stock is likely selling at a discount.

This simple, two-indicator equation is not a foolproof method for finding undervalued stocks but it can certainly serve as a solid stepping-off place for those seeking value. In this vein, below and throughout this series of articles are 34 stocks with over 10% trailing twelve month (ttm) ROE that are currently selling for less than book; beginning with five basic materials stocks, sorted by ROE:

1. Kingold Jewelry, Inc. (KGJI) is a gold manufacturing company that is currently trading with a P/B ratio of 0.50. The company's trailing twelve month ROE stands at 31.41%. Other notable valuation measures include a \$58.23 million market cap, 0.07 price to sales ratio (P/S), and 101.50% quarterly earnings growth, year over year.

(Click charts to expand)

2. Tesoro Corporation (TSO) is an oil and gas refining and marketing company that is currently trading with a P/B ratio of 0.85. The company's trailing twelve month ROE stands at 18.71%. Other notable valuation measures include a \$3.27 billion market cap, 0.12 price to sales ratio (P/S), and 516.10% quarterly earnings growth, year over year.

3. Thompson Creek Metals Company Inc. (TC) is an industrial metals and minerals company that is currently trading with a P/B ratio of 0.72. The company's trailing twelve month ROE stands at 17.26%. Other notable valuation measures include a \$1.24 billion market cap, 1.72 price to sales ratio (P/S), and 46.60% quarterly earnings growth, year over year.

4. L & L Energy, Inc. (LLEN) is a non-metallic mineral mining company that is currently trading with a P/B ratio of 0.57. The company's trailing twelve month ROE stands at 16.71%. Other notable valuation measures include an \$84.22 million market cap, 0.46 price to sales ratio (P/S), and -65.70% quarterly earnings growth, year over year.

5. Valero Energy Corporation (VLO) is an oil and gas refining and marketing company that is currently trading with a P/B ratio of 0.66. The company's trailing twelve month ROE stands at 13.91%. Other notable valuation measures include an \$11.40 billion market cap, 0.10 price to sales ratio (P/S), and 312.00% quarterly earnings growth, year over year.

Continue to part 2

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in KGJI, TSO, TC, LLEN, VLO over the next 72 hours.