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Stocks Traded at Historical Low Price/Book Ratios: RGLD, AZN, ABT, JNJ, WMT

March 31, 2011 | About:
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gurufocus

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Stocks of Royal Gold Inc. (RGLD), AstraZeneca PLC (AZN), Abbott Laboratories (ABT), Johnson & Johnson (JNJ), and Walmart Stores (WMT) are found to lead the list of the stocks that are traded at historical low price/book ratios. We only list the companies with high Business Predictability Rank in this screen. These businesses have been very predictable historically. They could grow their revenue and earnings at steady pace. Currently their stocks are traded at historical low price/book (P/B) ratios. If we believe that the valuation will reverse to the mean over time for them, these stocks will generate above-average returns at lower risk.

Study shows that stocks with low P/B ratios did outperform the market. According to the data published on the website of one of our gurus, Donald Smith, “A study that we conducted with Compustat data showed that from 1951 to 2009 stocks in the lowest price-to-tangible book value decile had the highest long-term returns, delivering a 15.4% return versus 10.7% for the S&P 500.” The results of the study are displayed in the chart below:

compustat.jpg

Looking through our list of the stocks that are traded at historical low price/book ratios, many of the companies are blue chip companies that our Gurus think are undervalued. Here we just highlighting some of the stocks.

Royal Gold Inc. (RGLD)

Royal Gold Inc. (RGLD) is traded at a P/B ratio of 1.9, close to 10-year low of 1.92. The stock is owned by 8 Gurus we track, including Mario Gabelli and Jean-Marie Eveillard.

Royal Gold Inc. is engaged in the acquisition and management of precious metals royalties. Royal Gold Inc. has a market cap of $2.8 billion; its shares were traded at around $52.05 with a P/E ratio of 54.8 and P/S ratio of 20.5. The dividend yield of Royal Gold Inc. stocks is 0.9%. Royal Gold Inc. had an annual average earnings growth of 26% over the past 10 years. GuruFocus rated Royal Gold Inc. the business predictability rank of 4-star.

Royal Gold Inc. announced record royalty revenue of $45.3 million for the first quarter of fiscal 2011 and net income attributable to Royal Gold stockholders of $11.8 million, or $0.22 per basic share. This compares to royalty revenue of $26.1 million and net income of $7.1 million, or $0.18 per basic share, for the first quarter of fiscal 2010.

AstraZeneca PLC (AZN)

AstraZeneca PLC (AZN) is traded at P/B ratio of 2.8, close to a 10-year low of 2.84. AstraZeneca is owned by eight Gurus, including Joel Greenblatt, John Hussman, and one of the best healthcare mutual fund managers Edward Owens.

AstraZeneca PLC is one of the top five pharmaceutical companies in the world based on sales and is a therapeutic leader in cardiovascular, gastrointestinal, oncology, anesthesia including pain management, central nervous system (CNS) and respiratory products. Astrazeneca PLC has a market cap of $66.4 billion; its shares were traded at around $46.58 with a P/E ratio of 7.9 and P/S ratio of 2. The annual dividend yield of Astrazeneca PLC stocks is about 5%. Astrazeneca PLC had an annual average earnings growth of 18% over the past 10 years. GuruFocus rated Astrazeneca PLC the business predictability rank of 4.5-star.

AstraZeneca has raised its dividends consistently over the past 10 years. The company generates more than $10 billion of cash flow from operations. The dividends payout is about $3.3 billion. It is safe to say the company can continue to pay the dividends.

AstraZeneca has grown its book value per share at a steady pace, averaged 11% over the past 10 years, as shown in the chart below:



Strong financial, high dividends, and low valuation! Get paid while waiting. What is not to like about AstraZeneca?

Abbott Laboratories (ABT)

Abbott Laboratories (ABT) is traded at P/B ratio of 3.3, close to 10-year low of 3.36. Abbott Laboratories (ABT) is one of the most popular stocks among our Gurus. Edward Owens owns more than 13 million shares. Apparently it ranked high with Joel Greenblatt’s magic formula, as it is in his portfolio, too.

Abbott Laboratories is a global, broad-based health care company devoted to discovering new medicines, new technologies and new ways to manage health. Abbott Laboratories has a market cap of $75.77 billion; its shares were traded at around $48.96 with a P/E ratio of 11.7 and P/S ratio of 2.1. The dividend yield of Abbott Laboratories stocks is 3.7%. Abbott Laboratories had an annual average earnings growth of 7.8% over the past 10 years. GuruFocus rated Abbott Laboratories the business predictability rank of 5-star.

The book value great of Abbott Laboratories is an impressive 10% per year over the past 10 years.



Similar to AstraZeneca, Abbott Laboratories has consistently increased their dividends over the past 10 years. The payout ratio is about 25% of the operating cash flow.

Johnson & Johnson (JNJ)

Johnson & Johnson (JNJ) is traded at P/B ratio of 2.9, close to a 10-year low of 3. Of course Johnson & Johnson is one of the most popular companies among all Gurus.

Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. Johnson & Johnson has a market cap of $162.72 billion; its shares were traded at around $59.38 with a P/E ratio of 12.4 and P/S ratio of 2.6. The dividend yield of Johnson & Johnson stocks is 3.6%. Johnson & Johnson had an annual average earnings growth of 9.3% over the past 10 years. GuruFocus rated Johnson & Johnson the business predictability rank of 4-star.

Johnson & Johnson is the blue chip with global brand names that Warren Buffett likes. JNJ is also the largest position with Prem Watsa. In Fairfax’s 2008 annual letter to the shareholders, Prem Watsa felt that, “Johnson & Johnson has perhaps the best long-term track record we have come across. They have compounded sales and earnings for the last 100 years in excess of 10% per year. The growth prospects for their products on a worldwide basis are unlimited.”

Some of the JNJ shareholders on GuruFocus wrote an open letter to the company. We have yet to hear from the company.

Walmart Stores Inc. (WMT)

Walmart Stores Inc. (WMT) is traded at P/B ratio of 2.6, close to a 10-year low of 2.68. Walmart is also of the most owned stocks. It is in the portfolio of Berkshire Hatahway, George Soros, Arnold van den Berg and many other Gurus.

Walmart Stores Inc. is the world's largest retailer. Walmart Stores Inc. has a market cap of $186.51 billion; its shares were traded at around $52.36 with a P/E ratio of 12.8 and P/S ratio of 0.4. The dividend yield of Walmart Stores Inc. stocks is 2.8%. Walmart Stores Inc. had an annual average earnings growth of 11.1% over the past 10 years. GuruFocus rated Walmart Stores Inc. the business predictability rank of 5-star

Similar to Johnson & Johnson, WalMart stock is one of the large cap blue chips that haven’t done much over the past decade. But they are cheap, according to Arnold van den Berg. Why? Because of apathy, disgust, fear and anger. For details, please read How do Great Companies Get so cheap? The Valuations of Microsoft, ADP, and Wal-Mart.

Arnold van den Berg argued: “Walmart operates its business with tremendous efficiency and consistency. For example, over the past 10 years its profit margin has ranged between 3.1% and 3.6%. Its return on capital has been between 13.6% and 14.8%, and its return on equity has been between 19.1% and 20.8%. In addition, Walmart has a free cash flow yield of 4.4%, a dividend yield of 2.2%, and it continues to buy back stock. Year to date, cash returned to shareholders through stock buy backs and dividends has been $9.37 billion, or $2.57 per share. Assuming no more share repurchases, Walmart will have paid shareholders $3.28 per share for the full year. This is 82.4% of the yearly earnings and represents a yield to shareholders of 6.4%.”

Similar to its revenue and earnings, Walmart has grown its book value per share at 10% a year over the past 10 years.



We don’t know when the prices of these stocks will get where they deserve, but at the current valuation of the broad market, these stocks offers low risks, good dividends, and potentially satisfactory returns. Check out the complete list of the stocks that are traded at historical low price/book ratios. This feature is for premium members only. If you are not a Premium Member, we invite you for a 7-day Free Trial.

About the author:

gurufocus
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 3.7/5 (18 votes)

Comments

stockguy1
Stockguy1 - 3 years ago
This is great info but doe sit mean that "those" stocks are trading in the lowest decile of the S&P500 or are they just cheap versus their own historical pricing?
kfh227
Kfh227 premium member - 3 years ago
I'm pretty sure that they are at lows relative to their own pricing. This kind of metric with well known companies like JNJ should warrant further investigation.

For what it is worth, I own JNJ. I own alot of JNJ. 35% of my portfolio right now. And i have long term LEAPS in JNJ (3% of portfolio maybe).

This one and SNY have cought my attention. With so much in JNJ I am apprehensive about buying SNY but I am very close to taking the plunge there also. I think SNY is more undervalued than JNJ.

FWIW: JNJ is worth $90-$105 in my opinion. Long term liabilities are tiny relative to FCF and FCF is very impressive. A look at JNJs financial health and FCF relative to market cap should make any considering the purchase of JNJ. Historically low PB is not THE reason but it is yet another reason.
JOHN F. FITZGERALD
JOHN F. FITZGERALD - 3 years ago


Love the Logic -

Weighted nicely

... the bear in the nature shot - salmon in teeth - see well

but he CAN smell very well

Logic always smeels - GREAT - and if you can see it-------4-5 stars

Subway Atlanta a.k.a. John F. FitzGerald or FX-Boston Guy

f

JOHN F. FITZGERALD
JOHN F. FITZGERALD - 3 years ago
I need Spell-Check - or more sleepSorry

Subway

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