Value investors are always looking for stocks that are undervalued, but determining the true value of a stock can be tricky. Investors must consider elements such as earnings potential, growth rate, debt levels and other metrics to figure out how much value a share of stock holds.
But is there a simpler way to identify undervalued stocks?
One of the simplest ways to identify the value of a stock is by its price to book ratio (P/B). The price to book ratio is calculated by dividing a company’s market capitalization by the combined value of all the company’s assets.
In other words, stocks with a P/B under 1.0 are selling for less than the value of the company’s assets.
Here are five basic materials stocks with P/Bs under 1.0, according to Finviz.
1. Alcoa Inc (NYSE: AA)
Alcoa currently sports a 0.94 P/B. Shares of the aluminum giant are down nearly 40 percent this year in the weak commodity environment.
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2. Freeport-McMoRan Inc (NYSE: FCX)
Global metal miner Freeport-McMoRan has witnessed seen an incredible 69.8 percent decline in share price over the past year. The stock now trades at a P/B of only 0.79.
3. Hess Corp. (NYSE: HES)
Oil exploration and production company Hess has been hit hard by slumping oil prices, and the stock’s precipitous fall has led to it trading below book value at a 0.75 P/B.
4. National-Oilwell Varco, Inc. (NYSE: NOV)
Another victim of the oil collapse, this oil & gas equipment & services leader has had its share price cut in half over the past year and now trades at a P/B of only 0.81.
5. Marathon Oil Corporation (NYSE: MRO)
Of all the large cap companies in the Basic Materials sector, Marathon Oil is currently trading at the steepest discount to book value. The company’s P/B is now an incredibly low 0.62.
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