Value investing is one of the very popular strategies to build a portfolio of stocks which have the potential to outperform over the long run. The strategy found favour with
30-Oct-2006 •Research Desk
Value investing is one of the very popular strategies to build a portfolio of stocks which have the potential to outperform over the long run. The strategy found favour with legendary investors like Benjamin Graham (who is also referred to as the father of value investing by many). The premise of value buying is to look for stocks which are trading at a discount to their intrinsic value. Two important ratios used to initiate the search for such stocks include price-earning ratio and price to book ratio.
PE ratio is the most popular measure to judge whether the stock is available cheap or expensive, and is calculated by dividing the stock's current market price with its earning per share. PB ratio is a useful measure to compare a stock's market value to its book value. If both the ratios are significantly lower than market averages, then it could mean that the stock is undervalued. Such stocks can also have a high dividend yield.
We searched for stocks which have a price-earning ratio of less than 10, price to book ratio of less than 1.5, and dividend yield of at least 3 per cent. 18 stocks made it to our list, which includes a lot of banks. It is sorted in the descending order of PE ratio.