Four cheap and financially strong companies to watch

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

Something to help your research

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. 

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.