A stock’s price-to-book-value ratio gives investors an idea of how expensive a stock is in relation to its equity. However, this is not as popular as using the price-to-earnings ratio, which only looks at recent performance. Instead, equity will include every year’s profits and losses as well as other changes in equity along the way. A stock that is trading below book value gets the interest of value investors that are looking for bargains, and while, in some cases, there might be good buys to be had, in other cases, a stock may be trading below book value, because there may be significant problems with the underlying business.
I’m going to look at three stocks that are currently trading near or below book value and assess whether or not the stocks are good buys.
Cascades Inc. (TSX: CAS) is trading right at its book value, and without a 29% increase in its share price this year, the stock would be trading at a sizable discount. The company is producer of paper, packaging, consumer tissues, and many other products. Cascades mainly uses recyclable goods to produce its products, as it focuses on the sustainability of its operations. This focus will help to grow its sales as demand moves toward greener and more sustainable businesses. Cascades is a great opportunity for ethical investors looking for companies that are environmentally friendly.
Ethics isn’t the only reason you should consider investing in Cascades. The company has done a great job growing its sales as well. In 2016, Cascades saw a year-over-year increase in sales of 4%, and in three years, revenue has risen 19%. Although the company’s bottom line has been in the red in two of the last three years, for the last five quarters, Cascades has posted a positive net income and averaged profit margins of 23% in its last two earnings reports.
Brookfield Infrastructure Partners L.P. (TSX: BIP.UN)(NYSE: BIP) is slightly under its book value, trading at a multiple of 0.9. It’s not a big discount, but any discount is a good one for a well-diversified infrastructure company with operations all over the world. The company serves many different industries, including utilities and transportation. Especially in light of the recent hurricane damage in North America, a lot of infrastructure will need to be repaired or, in some cases, entirely rebuilt, which could mean Brookfield might see an increase in demand in the short term.
The company saw strong sales growth of 14% in its last year, and in the most recent quarter it saw revenues double. Brookfield provides a stable investment that also pays a good dividend of over 4% per year.
