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Finding Value With the P/B Ratio: Corning Incorporated (GLW) and More

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The price to book (P/B) ratio is one of the most commonly used stock valuation metrics. To calculate this ratio you simply take the total market capitalization and divide by the book value of the company. Historically, companies with low P/B ratios have outperformed companies with higher P/B ratios over the long term. This allows the P/B ratio to be used as a way to find value stocks.

Like all simple ratios, the P/B ratio is nowhere near perfect. The book value includes intangible assets such as goodwill, patents, brand name, etc., which are inherently difficult (if not impossible) to value. These types of assets can be excluded, yielding the tangible book value, which may be more useful in certain cases. Another issue is that assets are typically recorded at-cost on the balance sheet instead of at-market. This can be especially inaccurate for assets like real estate that can appreciate in value significantly over time.

Corning Incorporated (NYSE:GLW)Because of these problems the P/B ratio offers a good way to find interesting value prospects, but should never be the only metric used. Often companies with low P/B ratios are undervalued by other reasonings, and vice versa for companies with high P/B ratios. I’ll take a look at three companies that are trading at or below a P/B value of about 1 and see if they warrant further investigation.

Corning Incorporated (NYSE:GLW)

The first company I’ll look at is Corning, which I’ve written about before. Using data from its most recent quarterly report here are the relevant figures from the balance sheet.

Type Value
Current Assets $9,695
Tangible Non-current Assets $18,184
Non-tangible Non-current Assets $1,496
Total Tangible Assets $27,879
Total Assets $29,375
Total Liabilities $7,842
Book Value $21,533
Tangible Book Value $20,037

All values except ratios in millions USD

Corning is trading at a discount to both the book value and the tangible book value. My previous article on Corning laid out an argument for Corning being undervalued based on a discounted cash flow calculation, so the low P/B ratio only makes the argument stronger. Historically Corning has traded at far higher P/B ratios, as can be seen from the chart below.

GLW Price / Book Value data by YCharts

While there’s no guarantee that Corning will revert to the P/B values of the past, currently the ratio is below the lowest value from the financial crisis in 2009. There are a lot of signs pointing to Corning being undervalued.

Bunge Ltd (NYSE:BG)

Bunge is a global agribusiness and food company, recording $60 billion in sales in 2012. Relevant figures from the most recent quarterly report are shown below.

Type Value
Current Assets $14,065
Tangible Non-current Assets $9,370
Non-tangible Non-current Assets $646
Total Tangible Assets $23,435
Total Assets $24,081
Total Liabilities $12,788
Book Value $11,293
Tangible Book Value $10,647

All values except ratios in millions USD

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