The Hunt for Value - Finding Diamonds in the Rough

Silvergate Capital, Silicon Valley Bank, and Signature Bank's recent collapse have revived investors’ fears. The sudden announcements surprised many investors and are still seen as posing potential risks in the markets. Investors fear contagion due to how the incident affects the market.

When fear is dominant, a shift in investor sentiment comes into play. Investors look for safer companies and industries with strong brands and long histories, such as high-quality dividend stocks. With an environment of high-interest rates and inflation, a potential recession, and a banking crisis, it's natural that investors look at different metrics when determining which stocks to add to their portfolio. One of the said metrics investors commonly use to evaluate a company is Price to Book value.

You can find the Price To Book value for any stock by first searching for a stock, and then clicking “Key Statistics” under the Company heading in the left-hand sidebar. The Price/Book reading will be in in the Ratios section at the top right.

What is the Price to Book Value?

Price to book value (P/B) is the ratio of a company’s share price over its book value of equity. Book Value is the difference between the value of a company’s assets and its book value of liabilities. Price to book value is one of the ways investors gauge if a company is trading at more than its book value. Strictly from a P/B standpoint, a high P/B ratio implies that a company may be overvalued, and a lower P/B can imply that the company may be undervalued. A general rule of thumb is that if the P/B is lower than 1, it suggests that a stock is trading at a discount relative to its intrinsic value. 

However, investors should compare a company to its peers in the same sector to better understand the average P/B of the industry, as some may be higher than others. 

Now, let’s look at 3 dividend kings currently trading low book values.

Universal Corp (UVV)

Price to Book Value ratio: 0.91

Universal Corporation is a tobacco leaf supplier company that operates in 2 main segments: Tobacco Operations, and Ingredients Operations. The company supports farmers of different origins by contracting, offering agronomy support, and financing. UVV uses a plant-based ingredients platform to provide vegetable and fruit-based ingredients, botanical extracts, and flavorings to human and pet food markets. UVV’s segment functions are:

• Tobacco Operations – includes contracting, procuring, financing, storing, and shipping leaf tobacco to manufacturers of consumer tobacco products.
• Ingredients Operations – provides a range of plant-based ingredients for both human and pet consumption to its business-to-business customers.

Universal Corp has an annual dividend yield of 6.12% and a 5-year dividend growth rate of 46.01% and has declared its 2nd interim dividend for $0.79 last Feb 1, 2023, and will be paid to stock investors by May 1, 2023. UVV has continued to increase its dividends for 51 years and is part of the elite dividend kings list.

Analyst rating and Barchart Opinion Rating

There is currently no analyst rating for UVV.

Barchart Opinion Ratings for UVV is 64% Sell.

Stanley Black & Decker, Inc. (SWK)

Price to Book Value ratio:1.22

Stanley Black & Decker, Inc. is headquartered in New Britain, Connecticut, U.S., and has over 60,000 employees worldwide. The company was founded in 1843 by Frederick Trent Stanley, S. Duncan Black, and Alonzo G. Decker. Today, it manufactures and sells various industrial tools and household hardware.

The company sells its products in about 60 countries and has manufacturing facilities in over 100 countries. It is the world’s leading company in the tool industry and engineered fastening systems. 

The company has many well-known brands under its name. These brands are divided into three categories:

• Tool brands: consist of famous brands such as Dewalt, Stanley, Lenox, Mac Tools, and many more.
• Outdoor brands: include many well-liked names, such asCub Cadet, Troy-Bilt, Hustler, Craftsman, and many more.
• Industrial Solutions: comprises brands like Stanley Infrastructure, CAM, Stanley Engineered Fastening, and CribMaster.

Stanley Black & Decker, Inc. has an annual dividend yield of 4.01% and a 5-year dividend growth rate of 31.4%. The company declared its 1st interim dividend of $0.80 last Feb 15, 2023, and will be paid to common stock investors by March 21, 2023. SWK has continued to increase its dividends for 55 years and is part of the elite dividend kings list.

Analyst Ratings and Barchart Opinion

Analysts rate Stanley Black & Decker, Inc. as a "Hold" with 3 Strong Buys and 10 Holds from Analysts. SWK’s Mean The target price is $91.18, with a high estimate of $110.00 (an upside of 37.12%) in the next 12 months. 

Barchart Opinion Rating for SWK is 56% Sell.

 

Black Hills Corp (BKH)

Price to Book Value ratio: 1.3

Black Hills Corp. is a publicly traded electric and gas utility company headquartered in Rapid City, South Dakota. J. B. French started the firm in 1941. Today, the company operates in eight

states: Arkansas, Colorado, Iowa, Montana, Nebraska, South Dakota, Wyoming, and

Texas. It serves a population of approximately 1.3 million people. The four business segments of this company are electric utilities, gas utilities (which provide heating and

cooling), power generation, and mining.

The company's 1.3 million customers divide into 1,083,000 natural gas and 216,000 electric users across different states.

Black Hills Corporation has an annual dividend yield of 4.07% and a 5-year dividend growth rate of 31.4% and is expected to announce its next dividend in the last week of April based on its historical announcements. BKH has continued to increase its dividends for 52 years and is part of the elite dividend kings list.

Analyst Ratings and Barchart Opinion

Analysts rate Black Hills Corporation as a "Moderate Sell" with 2 Holds Buys 1 Sell and 1 Strong Sell from Analysts. BKH’s mean Target price is $64.00 with a high estimate of $68.00 (an upside of 10.10%).

Barchart Opinion Rating is a 100% Sell.

Final Thoughts

Using Price to Book value as an investment criterion is a useful strategy for investors looking at companies that are undervalued strictly on a Price Book Value metric. However, investors should also look at the limitations of the metric and not focus on it as a single basis for investing in a company. Risk management should always be a priority, and other metrics should also be considered. Some companies are undervalued based on their Price/Book value for a reason - and can remain undervalued for longer.

 

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On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.