More stocks have been trading this year below the value of the assets on their books than at any time in the past 20 years.

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More stocks have been trading this year below the value of the assets on their books than at any time in the past 20 years.

Nearly one in five stocks in the Russell 3000 index, which covers about 98 percent of the U.S. market, had a price-to-book value ratio of less than 1 at the end of August, according to ING Investment Management. The ratio divides a company’s stock price by its book value. A price-to-book ratio of less than 1 means a company may be underpriced, as it’s trading below its likely liquidation value.

While this may seem like a signal to buy, it’s not foolproof, says Pavel Vaynshtok, analyst for ING Investment Management. Over the past 20 years, stocks with a price-to-book ratio of less than 1 have done worse than the Russell 3000 about half the time.

To be sure, investing in companies with low price-to-book ratios can be risky. For one, book values themselves are under pressure now, particularly at financial companies.

Companies have been recording big asset write-downs recently, amid the housing slump and credit crunch. This reduces the denominator in the price-to-book ratio, meaning the ratio could leap back above 1 even if the stock price remains depressed.

Other strategists also are still urging caution. “I think it’s best to wait for signs of stabilization in collateral values and a bottom in the economic outlook before adding significant risk to the portfolio,” RBC Capital Markets strategist Myles Zyblock writes in a report. He suggests sticking with high-quality bonds and defensive stocks, such as those in the consumer staples and health-care sectors.