Interactive Investor

Four cheap and financially strong companies to watch

24th December 2020 12:03

Keith Bowman from interactive investor

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These FTSE 100 and FTSE 250 companies both the score very well on two key investment measures.

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There are a number of measures that investors can use to try and uncover value or cheap stocks. 

One such measure is to contrast a company’s share price against its assets. The price to net asset value (NAV) is also known as price-to-book value. It is calculated by dividing a company's share price by its NAV per share, defined as its total assets minus any liabilities, or the net value of a business's assets on its balance sheet.

Lower values are better - anything below one indicates that the company is trading at a discount to its net asset value. That's means you can buy the assets for less than they are worth.

This measure is then often combined with the Piotroski score. Named after Chicago accounting Professor Joseph Piotroski, it uses nine criteria to measure a business’s financial strength. 

The nine aspects are based on accounting results over a number of years. Measures include profitability, leverage and operating efficiency. One point is awarded each time a standard is met, resulting in an overall score. A score of eight or nine is considered very strong. A score of two or less is considered weak.

Using the SharePad software, we have run these two measures over companies in both the FTSE 100 and 250 indices. 

For the price-to-NAV measure, results were filtered using a maximum of one. For the Piotroski score, companies were filtered for a minimum of 7. 

   
Company   
   
Price to NAV   
   
Piotroski Score   
   
Index constituent   
British American Tobacco (LSE:BATS)   1 FTSE 100
Kingfisher (LSE:KGF) 1 FTSE 100 
Workspace Group (LSE:WKP)   0.6    7    FTSE 250   
Cairn Energy (LSE:CNE)  0.9    8    FTSE 250   

Source: SharePad as at 22 December 2020

A recent trading update from British American Tobacco (LSE:BATS) saw it raise its full-year revenue forecast given a lower-than-expected hit from the Covid pandemic. Ecommerce sales for DIY retailer Kingfisher (LSE:KGF) rose by over 150% in its third-quarter as the virus accelerated its push online. 

London office provider Workspace (LSE:WKP) summarised its first-half results as resilient despite reporting a pre-tax loss, while oil and gas explorer Cairn Energy (LSE:CNE) has recently announced the return of $250 million to shareholders following the sale of its Senegal assets. 

Other companies in the FTSE 350 index with an attractive price-to-NAV include both Micro Focus (LSE:MCRO) and Babcock International (LSE:BAB), with values at 0.3 and 0.5 respectively. Their Piotroski scores however each total a less positive average of four. 

Companies with attractive Piotroski scores include Unilever (LSE:ULVR) and Howden Joinery (LSE:HWDN) each coming in at 8, although price-to-NAV's are less favourable at 9.4 times and 6.7 times respectively.  

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Related Categories

    UK shares
    Value Investor
    Consumer goods and services
    Europe
    Commodities
    Industrials
    Property
    Technology
    Infrastructure

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