Bargain hunters and value investors often seek out companies that they believe are underpriced and therefore have limited downside potential. To that end, one of the metrics that they often observe is a company's book value. The thinking is that, if they can buy a company that trades at a low multiple of book value or under book value, the downside potential may be limited.

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Of course, this isn't always a foolproof method. To the contrary, companies that trade at low multiples of book value or under book value may be in the doghouse for a reason. There may be company-specific problems or perhaps investors don't believe that the company has solid longer-term growth potential. Finally, companies that trade at low multiples of book value may, in some cases, trade at lowly levels for prolonged periods of time because of the lack of a catalyst.

With all of that in mind, periodically I like to search and screen for companies that trade under book value. The following are some of the companies that I found in my search - they may be worth another look.

Company Market Cap. Price/Book (MRQ)
Allstate (NYSE:ALL) $8.9 billion 0.71 times
Brocade Communications Systems (Nasdaq:BRCD) $1.1 billion 0.65 times
Ingersoll Rand (NYSE:IR) $4.4 billion 0.66 times
J.C. Penney (NYSE:JCP) $3.6 billion 0.88 times
Kaiser Aluminum Corporation (Nasdaq:KALU) $378 million 0.46 times
As of Market Close March 16, 2009

Ingersoll Rand
Shares of Ingersoll Rand have certainly seen better days. In fact, the stock is down more than 60% over the last 52 weeks. However, I wouldn't count out the New Jersey-based maker of commercial and industrial equipment just yet.

Here's what makes my ears perk up about the company: From an aerial view, Ingersoll Rand has a big foothold in important businesses like refrigeration and air conditioning. Over the long run, as our economy grows, the company is well positioned to reap the benefits. I'd also be remiss if I didn't point out that the company traces its roots back to the early part of the 1900s - it has operated in good times and bad. (Investing during an economic downturn simply means changing your focus. Learn more in Cyclical Versus Non-Cyclical Stocks.)

Forward Looking
One might assume that a company dealing in that type of equipment might be awash in a sea of red ink in tough times like these. However, Ingersoll Rand is expected to earn $1.84 per share in the current year and $1.93 per share next year, according to Thomson Financial Networks. For those who pay close attention to P/E ratios, the company currently trades at about 7.5 times the current year estimate and at roughly 7.2 times the 2010 estimate. According to the data, the company is expected to grow 13% per annum in the next five years.

While we are talking about valuation, the company trades at 0.67 times book value. Buying shares in a company that has a low price-to-book ratio is no guarantee of success. However, I think that once the economy perks up, analysts and investors will be paying a lot more attention to companies like Ingersoll Rand and there could be a sizable amount of upside.

I also don't want to forget the dividend. According to a February 4 release, Ingersoll Rand has paid consecutive quarterly cash dividends on its common shares since 1919 and annual dividends since 1910. The forward yield is just over 5% - that's a sweet little bonus, in my book.

With all of that in mind, Ingersoll Rand isn't the only equipment company to keep an eye out for. Johnson Controls (NYSE:JCI), which has its hands in the heating, ventilation and air conditioning (HVAC) business and the automotive business, is expected to have earnings per share of just 32 cents in the current year, but $1.27 a share in fiscal 2010. Also, I'm checking out Comfort Systems (NYSE:FIX), which designs and installs HVAC systems. It currently trades at about 10 times the current year estimate of 97 cents per share.

Bottom Line
It is possible that companies trading at low multiples of book value or under book value may continue to trade in the doldrums, but they are often worth a closer look. (For more about how this calculation will serve up your portion of the shareholder pie, check out Digging Into Book Value and Value By The Book.)