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Tangible Book Value is defined as book value minus intangible assets such as goodwill. It essentially shows the amount that would go to shareholders should the company go bankrupt and liquidate its assets. It does not include intangible assets since, valuable though they may be, they cannot be sold if the company goes out of business.
Ben Graham advised to only purchase stocks trading at two-thirds of tangible book value per share. Prem Watsa, founder of Fairfax Financial and Ben Graham devotee, has several stocks in his portfolio that, if not at two-thirds of tangible book value, are trading for at least less than tangible book.
These stocks are:
| Company | Price | Tangible Book |
| Research In Motion (RIMM) | $7.35 | $12.40 |
| CFS Bancorp (CITZ) | $4.54 | $9.50 |
| Citigroup | $27.65 | $50.80 |
| Cninsure (CISG) | $6.89 | $8.80 |
| Patterson-UTI Energy (PTEN) | $14.79 | $15.70 |
| Nam Tai Electronics (NTE) | $6.02 | $6.80 |
| Old Republic International (ORI) | $8.17 | $14.60 |
Tangible book value is one metric to consider when deciding whether to buy a stock. Here is Bill Ackman commenting on Watsa’s holding Citigroup (C), showing how he considers tangible book value in a broader context:
Citi remains extremely cheap relative to our estimate of intrinsic value – it trades at less than 60% of tangible book value, about six times last year’s underlying earnings per share and about four times normalized earnings per share after giving credit to its net tax assets and excess capital.
The intrinsic value of Citi has increased meaningfully over the course of our ownership of the bank while the stock price has declined substantially. We believe that the continued generation of profits and increase in growth of tangible book value will ultimately cause investors to revalue the bank at prices approaching its intrinsic value.
See more valuations of Watsa’s stocks here.
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