Buying stocks below book value can lead to some of the best investments you can make.

August 8, 2008

Think of the search for value stocks like grocery shopping for the highest quality goods at the best possible price.
Christopher H. Browne
"The Little Book of Value Investing"

Sometime ago I read and recommended to all of stock2own' community a book "The Little Book of Value Investing" by Christopher H. Browne. I could find a lot of wonderful ideas in that little book. In his investment research author, as a value investor, looking for a big margin of safety and he introduces an interesting criteria for a bargain. He is saying that sometimes you can find stocks with current market price below book value per share (BVPS): "Buying stocks below book value can lead to some of the best investments you can make."

For a while I could not believe that there is still an opportunity to find such a good deal. However, currently US stock market is down and, probably, most heavily beaten companies are banks. On the opposite side, banks are the basis of the economy, they are strong and powerful. So, I started to search for a banks with good financial numbers. Could you believe that I found there a bunch of companies that currently traded below their BVPS?!

There are still a lot of analysis and research needs to be done, however, there is a good starting point available for you: Banks & Loans Market Analysis Report which includes companies all around the World from financial services, banks & loans sectors. Not all of them, but everything currently available at stock2own.com. Companies where current market price is below book value are highlighted.

Just as an example, please, take a look to the East West Bancorp, Inc. (US:EWBC). This bank is not very big, but has pretty good numbers. After I read recent Press Releases and Letters to shareholders, I added it to my Watch List - it looks to me that executives are extra cautious with their projections, which is good, I guess. I also could find that managers are buying this stock, which is a good sign also.

Now take a look to the following Technical Indicator Charts for EWBC for the latest 90 days. The stock went up 67% in just 2 weeks in July! If you would follow chart signals, you might buy this stock at the begining of July and currently you would be up more than 70%!

Is it just luck? Is bank crisis over? I do not know. But I guess, the idea of buying good stocks below their book value is worth trying.

To Your Success,
Alex.

P.S. Very important:
Please, do not use Market Analysis Reports as an advice! Please, treat it as a food for thoughts and do your own research! As Mr. Browne says: "Blindly buying the new low priced stocks list or the screen results could well end in investment disaster. Because maintaining a margin of safety is one of the core principles of wealth building through value investing, our lists are a starting point, not a destination."