Alcoa Inc (AA): These Dow Giants Aren’t Necessarily the Bargains They Seem to Be

Still, JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corp (NYSE:BAC) have had so much bad news already come out over the past five years that it seems likely that their financials have largely gotten cleaned out, increasing the chances that their book values more closely reflect reality. That could mean they each have further to rise, although the stocks have already booked some powerful performance recently.

Meanwhile, for Travelers Companies Inc (NYSE:TRV), a price-to-book of 1.25 isn’t necessarily all that cheap for an insurance company. With so much of its asset base representing premium reserves that haven’t yet gotten paid out in loss claims, Travelers can’t afford to get too aggressive with its investment portfolio, and so investors don’t give the insurer much of a premium in valuing the stock in comparison to the relatively conservative assets on its balance sheet. Travelers has performed well recently, so it doesn’t look like there’s as much upside for the insurance giant as there once was.

Don’t fall for cheap book values
By itself, book value is only one more measure of a company’s value, and like any other valuation method, it has its strengths and weaknesses. By being aware of the pros and cons of book value, you can glean insight about a company without making bad conclusions about its future prospects.

The article These Dow Giants Aren’t Necessarily the Bargains They Seem to Be originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger owns warrants on Bank of America and JPMorgan Chase. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Bank of America and owns shares of Bank of America and JPMorgan Chase.

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