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Is the market underpricing these stocks? Add to ...

INVESTMENT EDITOR

WHAT ARE WE LOOKING FOR?

In November, we checked in on S&P/TSX composite companies that were trading under book value and found that about 80 of the 220 or so members had fallen that low (not including a few that were trading at negative book value such as Nortel Networks Corp.). Let's see if the numbers have increased.

MORE ABOUT BOOK VALUE

Book value calculates all of a company's assets minus liabilities and then divides that by shares outstanding. To find price-to-book value per share, we divide the stock price by the book value per share. This ratio has its flaws. Sometimes the company's book value is subjective, clouded by items such as what brands or patents are worth. At other times, book value is underrepresented. For example, land is usually valued at the purchase price - but 20 years later, it might be worth a whole lot more than is recognized on the balance sheet.

All this means is that book value is a good starting point for value investors, but that more homework needs to be done to try to determine whether the market is underpricing the true value of a company's assets. This is the work of value investors and with so many companies trading under book value it is their time to shine.

SO, WHAT DID WE TURN UP?

In the summer of 2007 when the markets were finding new highs, just nine companies on the S&P/TSX composite were trading under book value. Last summer, the numbers increased to a couple dozen. By the fall, more than a third of the composite was under book value. The numbers remain about the same now, but many of the companies trading at steep discounts to book have fallen sharply since the beginning of the year, suggesting the market doesn't believe the assets are worth what the books suggest.

***

Companies in the S&P/TSX composite trading under book value
Price-to- % chg in
Price $ 52-week 52-week P/E % book val. EPS last YTD % 1-yr %
Company name Symbol Feb. 18 high $ low $ ratio Yield per shr 12 mo. price chg price chg
Lundin Mining LUN-T 0.85 9.35 0.75 0.0 0.0 0.10 -229.3 -28.6 -89.4
Nova Chemicals Corp NCX-T 1.66 31.86 1.28 0.0 24.1 0.12 -113.6 -71.6 -94.6
OPTI Canada OPC-T 1.39 25.40 1.10 139.0 0.0 0.15 107.1 -22.8 -92.3
Iteration Energy ITX-T 0.78 9.08 0.76 6.0 0.0 0.16 181.3 -43.1 -87.0
Precision Drilling PD.UN-T 3.00 28.93 2.95 1.3 0.0 0.17 -13.1 -70.2 -84.8
Teck Cominco Ltd. TCK.B-T 4.15 52.90 3.35 2.6 0.0 0.18 -58.3 -31.1 -88.0
Sherritt International S-T 2.62 17.35 1.75 1.8 5.3 0.19 -28.6 -17.1 -83.1
Kingsway Financial Svc. KFS-T 2.90 14.99 2.66 0.0 10.3 0.20 -232.3 -55.0 -76.4
Cascades Inc. CAS-T 2.76 8.79 2.55 0.0 5.8 0.23 -188.9 -19.8 -67.1
Quadra Mining Ltd. QUA-T 3.55 27.00 1.97 1.2 0.0 0.25 -38.2 27.2 -84.0
Harry Winston Diamond HW-T 4.03 32.15 3.90 0.9 6.2 0.27 374.0 -28.3 -84.1
Galleon Energy GO-T 2.94 21.16 2.78 3.9 0.0 0.32 294.7 -42.4 -82.8
Trinidad Drilling TDG-T 2.88 15.45 2.55 3.2 20.8 0.33 -19.6 -35.6 -74.4
Dundee Corp. DC.A-T 4.55 15.92 3.73 9.7 0.0 0.33 -87.4 -24.8 -69.7
Savanna Energy Svc SVY-T 5.75 24.77 5.68 0.0 1.7 0.34 -146.5 -28.1 -66.4
Advantage Energy Incm AVN.UN-T 3.26 13.75 3.25 4.9 14.7 0.34 650.0 -36.3 -69.9
Connacher Oil and Gas CLL-T 0.82 5.26 0.60 11.7 0.0 0.35 -69.6 10.8 -73.8
Crew Energy Inc CR-T 3.62 19.94 3.32 7.2 0.0 0.35 400.0 -31.7 -68.3
InnVest REIT INN.UN-T 3.00 10.35 2.43 5.2 25.0 0.38 67.5 -22.3 -66.2
Newalta NAL-T 5.00 21.10 4.89 2.8 0.0 0.41 29.4 -21.9 -72.1
TimberWest Forest Corp. TWF.UN-T 2.38 14.61 2.34 0.8 0.0 0.42 857.5 -32.8 -81.4
Highpine Oil & Gas HPX-T 4.53 14.69 4.06 3.5 0.0 0.43 124.0 -13.7 -60.9
New Gold NGD-T 3.17 9.75 0.94 0.0 0.0 0.45 -3,284.3 79.1 -44.2
Magna International MG.A-T 35.33 82.00 29.13 15.6 2.6 0.45 -69.3 -3.9 -55.5
FNX Mining Company FNX-T 4.06 35.10 2.00 8.5 0.0 0.46 -58.6 33.6 -85.7
HudBay Minerals HBM-T 5.23 20.77 2.70 7.8 0.0 0.46 -76.8 70.9 -71.6
Yellow Pages Incm Fund YLO.UN-T 5.04 12.18 4.68 5.2 23.2 0.48 -2.0 -24.7 -58.0
Paramount Resources POU-T 6.63 22.30 6.01 0.0 0.0 0.48 -129.5 -3.5 -60.2

SOURCE: GLOBE INVESTOR

sadams@globeandmail.com

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