Benjamin Graham is the father of value investing. Why do we call him that? Well, he is the mentor behind the greatest investor of all time, Warren Buffet. If you have read “The Intelligent Investor“, you would realize that Mr. Graham has some fairly strict criteria when choosing “value” stocks. The great thing though about his strategy is that it’s fairly easy to screen stocks to find Graham’ish stocks.
This how The Stingy Investor approximates the Graham formula as:
TABLE 2: GRAHAM-INSPIRED RULES 1. P/E Ratio less than 15
2. P/Book Ratio less than 1.5
3. Book Value more than 0.01
4. Current Ratio more than 2
5. Annual EPS Growth (5-Yr Avg) more than 3%
6. 5-Year Dividend Growth more than 0%
7. 5-Year P/E Low more than 0.01
8. 1-Year Revenue more than $400 Million
In addition to the above, Graham recommends to sell the stock after 1 year or when it appreciates 50%. Whichever comes first.
Past track record
The Stingy Investor has been using their Graham strategy for years with great results. Here are their returns since 2000.
|TABLE 1: PERFORMANCE OF PAST GRAHAM STOCKS|
|2000 – 2001||20.4%||-22.2%||42.6|
|2001 – 2002||28.2%||-15.1%||43.3|
|2002 – 2003||56.8%||16.5%||40.3|
|2003 – 2004||32.2%||9.4%||22.8|
|2004 – 2005||46.6%||12.8%||33.8|
|2005 – 2006||-3.8%||10.7%||-14.5|
|2006 – 2007||34.4%||16.1%||18.3|
|* Indicates the time between articles and not calendar years.|
How do you screen for Graham stocks?
In my opinion, the best stock screener on the web is the deluxe MSN Stock Screener. Unfortunately, it only covers the some of the US market at the current time, but does a great job with the markets that they do cover.
To access the screener, a plugin to your browser may need to be installed.
- Simply go to MSN Stock Screener with Internet Explorer.
- Click on the link on the bottom right “Deluxe Stock Screener“
- You will be prompted to install an ActiveX plugin for your browser which is required.
Use the criteria above and you’ll get the results below. Note that the MSN stock screener works best with Internet Explorer.
During extreme bull markets, top notch Graham picks are few and far between. However, during bear markets like these days, the results are plentiful.
Here are some of the results that I came up with on the NYSE (oct 14). Click on the image to enlarge.
Since we now have a record of the stock price, perhaps i’ll do a semi-annual checkup to see how these stocks are performing.
As of Oct 14, 2008, we have:
- Textron Inc (TXT): $22.47
- Carlisle Companies Inc (CSL): $24.70
- Timken Co (TKR): $23.17
- Movado Group Inc (MOV): $17.50
- HB Fuller Co (FUL): $16.36
- Cascade Corp (CAE): $38.19
As always, this article is not meant to give you stock picks but to give you a primer on how value investing works. Even though the stock screener spits out various “value” stocks, due diligence is required as to “why” they are being sold off as aggressively as they are. Provided the fundamentals of the company hasn’t changed, then it could possibly be a winner!
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