The focus of the July filter is to present some stocks that do not get as much attention at 5i Research. We typically do not like stocks trading below book value because it usually means that there is something wrong at or with the company’s prospects. It may be in the form of declining revenues, overvalued assets or even some sort of pending asset write-down or dividend cut that could lead to a stock trading below its book value. There are also times when a company may not be given the full credit it deserves, providing opportunity for excess returns. This filter looks at companies trading at a price to book ratio below one that pay a dividend while also having positive earnings. The dividend and positive earnings are an attempt to filter out the companies that are destroying value through consistent losses or that are not generating any revenues. It is important to remember that this is only the output of a filter and not any sort of endorsement of the companies:

As one might expect, REITs dominate the list as valuations have remained depressed with fears of changes in interest rates affecting the prospects of these companies. There are also a few names trading at very low P/B ratios and very high yields. While these often look attractive, we would tend to avoid these names in the high majority of cases as both the low P/B and high yield act as red flags from the market. Investors that ignore these red flags that the market provides, do so at their own risk.