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5 Undervalued Stocks That Are Poised for Growth in November
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Key Takeaways
Five stocks with low P/B ratios and solid growth potential make the November value screen.
StoneCo, Great Lakes Dredge & Dock and EnerSys boast robust projected EPS growth rates.
MillerKnoll and Keros Therapeutics stand out with their high Value Score and promising fundamentals.
Value investors have preferred the price-to-earnings ratio or P/E since time immemorial as a means to identify value stocks. However, in the case of loss-making companies that have a negative price-to-earnings ratio, the price-to-sales or P/S ratio is considered while determining their true value.
However, the price-to-book ratio (P/B ratio), though used less often, is also an easy-to-use valuation tool for identifying low-priced stocks with great returns.
P/B is the ratio of stock price to book value.
It is calculated as below:
P/B ratio = market capitalization/book value of equity.
There are several ways in 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 went 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 the 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. Like P/E or P/S ratios, it is always better to compare the P/B ratio 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 warning. A P/B ratio of 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 such a 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 is not 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.
Screening Parameters
Price to Book (common Equity) less than X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.
Price to Sales less than X-Industry Median: The P/S ratio determines how much the market values every dollar of the company’s sales/revenues — a lower ratio than the industry makes the stock attractive.
Price to Earnings using F(1) estimate less than X-Industry Median: The P/E ratio (F1) values a company based on its current share price relative to its estimated earnings per share — a lower ratio than the industry is considered better.
PEG less than 1: PEG links the P/E ratio to the future growth rate of the company. The PEG ratio portrays a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued, and investors need to pay less for a stock that has bright earnings growth prospects.
Current Price greater than or equal to $5: They must all be trading at a minimum of $5 or higher.
Average 20-Day Volume greater than or equal to 100,000: A substantial trading volume ensures that the stock is easily tradable.
Zacks Rank less than or equal to #2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
Value Score equal to A or B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best opportunities in the value investing space.
5 Low Price-to-Book Stocks
Here are five of the 13 stocks that qualified the screening:
StoneCo provides financial technology solutions. The company offers an end-to-end cloud-based technology platform to conduct electronic commerce across in-store, online and mobile channels. StoneCo is based in Sao Paulo, Brazil.
Headquartered in Houston, TX, Great Lakes Dredge & Dock is the largest provider of dredging services in the United States, conducting business to maintain and deepen shipping channels, reclaim land from the ocean, and renourish storm-damaged coastline. GLDD has a projected 3-5-year EPS growth rate of 12.0%.
Great Lakes currently has a Zacks Rank #1 and a Value Score of A.
Headquartered in Pennsylvania, EnerSys manufactures, markets and distributes various industrial batteries worldwide. It currently has a Zacks Rank of #2.
ENS has a Value Score of A and a projected 3-5-year EPS growth rate of 15.0%.
Headquartered in Zeeland, MI, MillerKnoll, formerly known as Herman Miller, provides design solutions under key brands like Herman Miller and Knoll.
MillerKnoll has a Zacks Rank #2 and a Value Score of A. MLKN has a projected 3-5-year EPS growth rate of 12.0%.
Lexington, MA-based Keros Therapeutics is a clinical-stage biotech making novel treatments for hematological and musculoskeletal disorders.
Keros Therapeutics has a Zacks Rank #1 and a Value Score of A. KROS has a projected 3-5-year EPS growth rate of 23.6%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Image: Bigstock
5 Undervalued Stocks That Are Poised for Growth in November
Key Takeaways
Value investors have preferred the price-to-earnings ratio or P/E since time immemorial as a means to identify value stocks. However, in the case of loss-making companies that have a negative price-to-earnings ratio, the price-to-sales or P/S ratio is considered while determining their true value.
However, the price-to-book ratio (P/B ratio), though used less often, is also an easy-to-use valuation tool for identifying low-priced stocks with great returns.
P/B is the ratio of stock price to book value.
It is calculated as below:
P/B ratio = market capitalization/book value of equity.
The P/B ratio helps identify low-priced stocks with high growth prospects. StoneCo (STNE - Free Report) , Great Lakes Dredge & Dock (GLDD - Free Report) , Enersys (ENS - Free Report) , MillerKnoll (MLKN - Free Report) and Keros Therapeutics (KROS - Free Report) are some such stocks.
Now, let us understand the concept of book value.
What is Book Value?
There are several ways in 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 went 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 the 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. Like P/E or P/S ratios, it is always better to compare the P/B ratio 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 warning. A P/B ratio of 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 such a 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 is not 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.
Screening Parameters
Price to Book (common Equity) less than X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.
Price to Sales less than X-Industry Median: The P/S ratio determines how much the market values every dollar of the company’s sales/revenues — a lower ratio than the industry makes the stock attractive.
Price to Earnings using F(1) estimate less than X-Industry Median: The P/E ratio (F1) values a company based on its current share price relative to its estimated earnings per share — a lower ratio than the industry is considered better.
PEG less than 1: PEG links the P/E ratio to the future growth rate of the company. The PEG ratio portrays a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued, and investors need to pay less for a stock that has bright earnings growth prospects.
Current Price greater than or equal to $5: They must all be trading at a minimum of $5 or higher.
Average 20-Day Volume greater than or equal to 100,000: A substantial trading volume ensures that the stock is easily tradable.
Zacks Rank less than or equal to #2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment.
Value Score equal to A or B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best opportunities in the value investing space.
5 Low Price-to-Book Stocks
Here are five of the 13 stocks that qualified the screening:
StoneCo provides financial technology solutions. The company offers an end-to-end cloud-based technology platform to conduct electronic commerce across in-store, online and mobile channels. StoneCo is based in Sao Paulo, Brazil.
STNE has a Zacks Rank #2 and a Value Score of B. STNE has a projected 3-5-year EPS growth rate of 30.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Houston, TX, Great Lakes Dredge & Dock is the largest provider of dredging services in the United States, conducting business to maintain and deepen shipping channels, reclaim land from the ocean, and renourish storm-damaged coastline. GLDD has a projected 3-5-year EPS growth rate of 12.0%.
Great Lakes currently has a Zacks Rank #1 and a Value Score of A.
Headquartered in Pennsylvania, EnerSys manufactures, markets and distributes various industrial batteries worldwide. It currently has a Zacks Rank of #2.
ENS has a Value Score of A and a projected 3-5-year EPS growth rate of 15.0%.
Headquartered in Zeeland, MI, MillerKnoll, formerly known as Herman Miller, provides design solutions under key brands like Herman Miller and Knoll.
MillerKnoll has a Zacks Rank #2 and a Value Score of A. MLKN has a projected 3-5-year EPS growth rate of 12.0%.
Lexington, MA-based Keros Therapeutics is a clinical-stage biotech making novel treatments for hematological and musculoskeletal disorders.
Keros Therapeutics has a Zacks Rank #1 and a Value Score of A. KROS has a projected 3-5-year EPS growth rate of 23.6%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance