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 BeginnersFor 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.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
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.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
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.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV