Fundamentalist analysis for the selection of a stock portfolio with low book-to-market ratio


  • Augusto Wanderley Villaschi
  • Fernando Caio Galdi
  • Silvania Neris Nossa


This study combines the data utilized in traditional fundamentalist analysis, such as net income and ROA, with measures developed to evaluate companies with low book-to-market ratios (LBM), such as stable earnings, research and development spending and stable sales growth, in an attempt to separate the winners from the losers among LBM companies listed on the São Paulo Stock Exchange (Bovespa) in the period from 1994 to 2006. We used the model proposed by Mohanram (2005), adapted to Brazilian reality. The results for the Brazilian market are similar to Mohanram’s findings (2005) for the American market: the abnormal return for 12 and 24 months of a portfolio of companies with high GSCORE is significantly greater than the return of a portfolio of firms with low GSCORE.

Key words: profitability, shares, pricing, winners, losers.