This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Value Stock-Picking With Book Value

Companies like eBay (EBAY) and Amazon.com (AMZN) have made billions of dollars on a simple premise: People love bargains.

But what many people don't seem to realize is the bargain smorgasbord to be had in today's stock market.

A recent Forbes article claimed that the S&P is trading for 10% less than its fair value. And indeed, there are a few thousand stocks right now trading for less than book value. That's a pretty impressive number of investment bargains. Interested in cashing in?

Here's why book value might just be one of the most important metrics for 2008.

Book Value for Beginners

For the uninitiated, book value is basically a company's assets minus their liabilities and intangibles (like goodwill and patents). You can think of book value as a company's "net worth" -- higher book value means that a company has more assets and fewer liabilities, which is always a good thing.

Now when it comes to finding value plays, book value is a great tool to use in determining what a company is worth. The most important book value ratio is the price-to-book ratio (P/B). The P/B ratio takes the company's stock price and divides it by its book value per share.

So, why might knowing something like the P/B ratio be useful?

Well for starters, it can hint at whether a company is undervalued. If a stock trades for $10 per share, but its P/B ratio is $12, you've potentially got an attractive investment on your hands, with assets worth $2 more per share than you paid. While the P/B ratio will not give you an idea of how strong a company's product line is, it does tell you how much investment "insurance" you have. In other words, how much cash you could expect if the company were liquidated today.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,493.37 -69.93 -0.42%
S&P 500 1,925.15 -5.52 -0.29%
NASDAQ 4,352.6390 -17.1340 -0.39%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs