Under the Radar: The Untapped Potential of Price-to-Book Value Investing

Price-to-book value is irrelevant, according to conventional wisdom.

The common argument states that all that matters is Central Bank liquidity and the total addressable market. It has been a powerful story with massive tailwinds from technology and politics.

Today, intangible assets, like intellectual property and brand value, matter the most.

Critics claim that only “dinosaurs” use price-to-book value, and most of them are extinct.

 None of the biggest fund managers or self-proclaimed experts on the internet pay attention to the price of tangible book value.

“Value investing is dead,” they say, “and even if it weren’t, metrics like EBITDA and adjusted non-GAAP cash flow measures would be much more important than asset value.”

 I write some version of this column every four or five months, as this remains the widely accepted opinion.

That may be true if you’re managing billions of dollars and need to dump millions of shares instantly to justify your existence.

If you feel compelled to be part of the tribe and own all the same stocks everybody else does, deep-value investing based on tangible book value is probably not for you.

However, if you’re an individual investor looking to grow your wealth to finance the life that’s important to you, then deep-value investing isn’t only alive, it's probably your best choice.

If you want to achieve high returns without sitting in front of screens or losing sleep over market volatility, the deep-value approach may be ideal for you.

The heart of deep-value investing is buying companies that trade for the value of their assets minus all debt and obligations.

Unlike most analysts who rely on earnings forecasts, deep-value analysts approach the matter from a credit-first perspective.

The simple truth is that a credit-first, deep-value approach to investing has outperformed the market over almost any measurable period.

The market has just experienced one of its best decades ever, with index fund investors earning over 13%.

For every dollar the successful index fund investor has earned over the decade, investors who used the combination of credit and value would have earned $4.39.

2024 has been a fantastic year for large-cap stock investors, yet deep-value investors who focused on credit have performed even better.

 At no point in this journey would you have owned the stocks everyone loved. Over two decades, you would have owned few tech stocks.

 Your holdings would have been old-economy stalwart businesses that everyone ignored.

 Many of them would have been acquired by private equity firms and strategic buyers who recognized the value of adding these businesses to their existing operations over the years..

You would own more stocks at market bottoms than at market tops, as bargains become scarce as markets move higher.

Today is no exception.

While you won’t own any high-tech companies on the cutting edge of artificial intelligence, you will own companies that will be key providers of the energy needed for the economy to grow and support the expansion of AI and other technologies.

Consider PBF Energy Inc. PBF, one of North America’s largest independent petroleum refiners and suppliers. Headquartered in Parsippany, New Jersey, the company owns and operates a diverse portfolio of refining assets strategically located across the United States. PBF Energy also operates a logistics subsidiary, PBF Logistics LP PBFX, which provides transportation, storage, and terminal services to support its refining operations and third-party customers.

The stock currently trades at less than 60% of its tangible book value and has a strong credit profile. It pays a dividend yield of 3.6%, so investors collect cash while waiting for the price to reflect the company’s value. The decline in the stock price has attracted significant buying from Mexican billionaire and activist investor Carlos Slim, who owns 23% of the company.

Another example lies in shipping. Everyone claims the shipping business is terrible, arguing that China will never make, sell, or buy anything ever again, and that trade tariffs will bring global trade to a screeching halt. While I have no idea how things will play out for the global economy given China’s ongoing difficulties or the looming prospect of punitive tariffs, I do know that Genco Shipping GNK trades for less than the value of its ships and has a strong balance sheet.

The fundamentals of the business are fantastic despite the industry’s negative perception. Genco Shipping is a leading provider of dry bulk shipping services. Based in New York, the company operates a modern and diversified fleet of dry bulk vessels. As of October 2024, Genco’s fleet comprises 42 vessels, including various sizes of freight carriers. The fleet has a total carrying capacity of approximately 4.45 million deadweight tons and an average age of 11.9 years.

Genco continues to execute its comprehensive value strategy, focusing on paying substantial quarterly cash dividends, making voluntary debt repayments, and opportunistically growing and renewing its asset base. In line with this strategy, the company acquired the Genco Intrepid, a high-specification 2016-built 180,000 dwt Capesize vessel, delivered in October 2024. The stock yields over 10% at the current price and trades for just 65% of tangible book value and 8 times earnings. Wall Street pays very little attention to these stocks, and internet pundits have no idea these companies even exist. Deep-value investors who understand the power of valuation, credit, and patience could do very well with both of these stocks.