Selling Below Book Value: Photronics and 3 Other Stocks

John Dorfman

November 9 2020 (Maple Hill Syndicate) – Skeptics say that looking at book value is a dumb way to pick stocks. I say the opposite.

The price-to-book ratio is a venerable stock picking tool, first popularized by Benjamin Graham, widely considered the father of value investing.

To calculate the ratio, take the stock’s price, and divide it by the company’s net worth per share, also known as book value. Graham liked to see this ratio below 1.0. Today the average U.S. stock sells for 2.3 times book.

Critics maintain that book value is an unreliable number, for various reasons. The reason cited most often is that it “distorts” book value when a company buys back its own stock. Buybacks are good, they say, yet they often paradoxically lower book value.

I see no distortion here. Money spent on buybacks is gone from the corporate treasury, as surely as if it were spent on artworks for headquarters or wild Christmas parties.

Sure, book value is an imperfect number. But so is every number that investors use to measure a company’s worth.

It’s Worked

Almost every year beginning in 1998, I have recommended a few stocks that look good because their price-to-book value ratio is low. The average 12-month gain on these stocks has been 15.3%, compared to 10.6% for the Standard & Poor’s 500 Index.

Of the 19 columns I’ve written on this subject, 12 have beaten the index and 13 have been profitable.

Bear in mind that my column recommendations are hypothetical: They don’t reflect actual trades, trading costs or taxes. These results shouldn’t be confused with the performance of portfolios I manage for clients. Also, past performance doesn’t predict future results.

Last year was a flop. My low-price-to-book selections fell 28%, by far their worst loss ever. Contributing to the debacle was a 95% loss in Oasis Petroleum Inc., which declared bankruptcy in September.

Met Life Inc. (MET), Kelly Services Inc. (KELYA) and Sims Metal Management Inc. also had double-digit losses.

Despite the rough year, I expect better things to come. Here are four new picks that look good to me based on price-to-book.


Based in Brookfield, Connecticut, Photronics Inc. (PLAB) makes photomasks – quartz plates that contain microscopic images of electronic circuits. The masks are used by semiconductor manufacturers to make chips.

Three things draw me to Photronics. It has very little debt, only 7% of stockholders’ equity. Its Piotroski F-Score, which is basically a measure of timeliness, is 9 out of a possible 9. And it sells for 0.88 times book value.

GIII Apparel

Having a horrible year is G-III Apparel Group Ltd. (GIII). You may not know its name, but you probably know some of its brands, which include Donna Karan and DKNY (owned) and Calvin Klein, Tommy Hilfiger and Karl Lagerfeld (licensed). It owns Wilson Leather, G.H. Bass and DKNY retail stores.

After earning $144 million in profits in the fiscal year that ended in January, G-III lost $54 million in the first two quarters of the current fiscal year. It relies on distribution channels that were declining even before the pandemic, notably department stores.

But I think the brands are strong, and the company had turned a profit in 14 of the 15 years before the pandemic hit. With the stock down 50% this year, and selling for 0.56 times book value, I think it is a buy.

Graham Holdings

The remnants of what once was the Washington Post empire can be found in Graham Holdings Co. (GHC), which owns the Kaplan education and test-preparation companies, along with seven television stations in cities including Houston, San Antonio, Orlando, and Jacksonville.

Graham Holdings has been profitable in 14 of the past 15 years. It had a loss in the March quarter, but showed a profit in the June quarter and a nice profit in the September quarter.

Met Life

I’ve recommended Met Life before and been wrong. But I want to give it another try. Met, based in New York City, sells group life and health insurance and has a market value of almost $37 billion. The stock offers a 4.5% dividend yield.

Met Life’s debt is only 25% of equity, which makes it one of the stronger of the major financial companies. The stock has been stagnant for a decade, but I think it may be ready to make a move, as witness its high Piotroski F-Score — 8 out of a possible 9.

Disclosure: I own Met Life shares for a couple of my clients, but not personally.


John Dorfman is chairman of Dorfman Value Investments in Boston. His firm of clients may own or trade securities discussed in this column. He can be reached at

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