Ask Matt: How to find cheap stocks to add to your portfolio

— -- Q: Is there a way to find companies with low price-to-book and low P-E ratios? What are they?

A: Consumers don't have any trouble looking for discounts or sales. Just open a newspaper or go to just about any news Web site and the deals come popping out. But investors looking for cheap stocks often don't even know where to start.

Sadly, the stocks that often get the most attention are the ones with the most hype behind them. And these overexposed stocks are often the ones that stand to have the lowest returns because investors pushed the prices up so much.

It's not just hyperbole. Academic research has shown "value" priced stocks, or those with relatively low price-to-book ratios tend to be solid performers, after adjusting for risk. Since investors pay a lower relative price for value stocks, their shot at a better return is increased.

If stocks with low P-E ratios are best, how can investors go about finding them? There are a number of online stock screening tools that will parse the thousands of available stocks to pinpoint the ones with the lowest price-to-book and price-to-earnings ratios.

There are many tools that can do this, but one free tool that's especially easy to use is Bing Finance's Stock Screener.

Bing's Stock Screener allows you to filter just about all stocks based on a number of criteria, including price-to-book and P-E. Here's how:

1. Make sure the "Custom" tab is selected below the Stock Screener header. You will be building a screen from scratch rather than customizing an existing one.

2. Click the Add Filter button on the right-hand side of the screen. The Add filter menu will pop up on your screen.

3. Choose the "Valuation" Filter Group on the left-hand side of the Add filter pop-up menu.

4. Choose the "P/E" and "Price to Book" filters from the pop-up menu and click the Done button.

5. Adjust the P/E and Price to Book sliders to capture the stocks with the lowest values.

When you're done, you'll get a list of stocks and their price-to-book ratio like the one below when I ran the screener (I've limited the list below to only the stocks that trade on major U.S. exchanges):

The list above is just for demonstration and is not in any way intended to be a list of stocks to blindly buy. Just because a stock has a low price-to-book ratio doesn't mean it's going to do well in the future. Most academic studies have focused on diversified baskets of large numbers of value-priced stocks, not a limited sample like the one above.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz