Quality companies with low price to book value ratios have outperformed companies with higher valuations for the past three-, five- and ten-year periods, says J. Royden Ward of the Cabot Benjamin Graham Value Letter.

To find the best companies with low P/BV ratios, we required:

  • Value Line Financial Strength ratings of B++ or better
  • low price to earnings ratios
  • dividend yields of 1% or higher
  • good earnings prospects for the next 12-month and five-year periods.

Abbott Laboratories (ABT)

This is a terrific company selling at a reasonable price and yielding an above-average dividend.

Abbott is performing quite well with the help of strong sales in emerging markets and with recent acquisitions. Sales will increase 6% and earnings will likely increase 10% during the next 12 months.

ABT’s forward 12-month P/E of 10.7 is quite reasonable. Earnings will continue to increase at a 10% pace in future years, and the dividend yield is now 3.6%.

Drug stocks, in general, have lagged the stock market in 2011, but lately investors are beginning to notice the low P/Es, high yields, and steady earnings growth.

There is good news at Abbott, too. The company will split into two separate companies before the end of 2012. We believe the two companies will be worth more than the current company, and investors who wait will be justly rewarded!

ABT is very low risk. Our minimum sell price for the stock is $72.97.

CME Group (CME)

After several mergers and acquisitions, CME is now the world’s largest futures exchange, and is capable of trading and clearing a wide variety of futures and options.

CME has produced rapid growth during the past eight years, which will probably continue in the future. EPS growth of 12% is likely during the next 12-month period.

We foresee very little change in speculative futures trading, even though Congress has enacted restrictive regulation. The company is focused on increasing transparency and upgrading technology.

Elevated market volatility because of the sovereign debt crisis in Europe is sparking substantially higher options volume to the benefit of CME. We expect the high demand for options to continue well into 2012.

At 14.1 times forward 12-month EPS and 0.77 times book value, CME shares are very reasonable. Also, the dividend—which will likely be raised soon—provides a respectable 2.1% yield.

CME is low risk. Our minimum sell price is $480.

Occidental Petroleum (OXY)

This is one of the largest oil and gas companies in the US, but also has international exploration and production operations. OxyChem, a subsidiary, is one of the largest US marketers of chlorine and caustic soda.

Occidental sold several of its businesses and acquired others, so it can focus on oil and natural-gas exploration and production. Recent results have been impressive, with revenues rising 24% and earnings jumping 47% during the past 12 months.

We forecast sales growth of 12% and an EPS increase of 14% based upon continuing high oil prices during the next 12 months. The company has huge oil and gas reserves, which it will aggressively develop during the next several years.

OXY is low risk. Our minimum sell price is $142.

Subscribe to Cabot Benjamin Graham Value Letter here...

Related Reading:

Related Articles
  1. Stock Analysis

    The Biggest Oil Producers in Asia

    Learn which Asian countries deliver the most crude oil to market, and discover what companies are the biggest producers in each country.
  2. Stock Analysis

    The 5 Biggest Russian Oil Companies

    Discover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
  3. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  4. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  5. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  6. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  7. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  8. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  9. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  10. Insurance

    The 5 Biggest Russian Insurance Companies

    Discover the five companies that dominate the Russian insurance market, and learn a little more about their business operations and ownership.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!