You only need one hand to count the valuable stocks that this stock screen has unearthed
It’s been a while since I’ve written on the stock screen I use based on Benjamin Graham’s “Stocks for the Defensive Investor”, a methodology on display in Graham’s masterpiece. 1949 “The smart investor”. The reason I haven’t written about this is because the screen went blank for many months with no qualifiers. The criteria I have been using for years have been changed from Graham’s, but the principles behind the search are the same:
- Adequate size. A business should have a turnover of at least $ 500 million on a 12 month basis. (Graham used a minimum of $ 100 million and at least $ 50 million in total assets.)
- Good financial situation. A business should have a current ratio (current assets divided by current liabilities) of at least 2.0. It should also have less long term debt than working capital.
- Stability of earnings. A business must have had positive profits over the past seven years. (Graham used a minimum of 10 years.)
- Record dividend. The company must have paid a dividend within the past seven years. (Graham needed 20 years.)
- Profit growth. Earnings must have increased by at least 3% compounded annually over the past seven years. (Graham has taxed a gain of one-third of earnings per share for the past 10 years.)
- Moderate price / earnings (P / E) ratio. A stock must have had an average P / E of 15 or less in the past three years.
- Moderate price-to-asset ratio. The price-to-earnings ratio multiplied by the price-to-book ratio must be less than 22.5.
- No utilities or retailers
The last time I wrote on this topic, in February, there were only three qualifiers: Commercial Metals (CMC) (up 39% since), Methode Electronics (MEI) (up 11%) and Standard Motor Products (SMP) (up 19%). Two of them, CMC and MEI, are back on the list, repeat offenders.
Commercial Metals, which makes steel and metal products, is trading at 9 times next year’s consensus estimate, 11 times 2023 consensus estimate, and is earning 1.74%. Its shares are up 57% year-to-date.
Methode Electronics, which has occasionally appeared in other research related to the value I use, trades at 12.5x 2022 consensus estimate (its fiscal year ends in April), 11x 2023 estimate and returns 1.3%. Its shares are up 10% since the start of the year.
Newcomer (although I have also seen this name on several of my value displays over the years) Miller Industries (MLR), which manufactures and sells towing equipment, is trading at around 14.5 times profit on 12 months and earns 1.99%. Miller Industries does not currently have any analyst coverage, so no earnings estimate is available. Its shares are down 5% year-to-date and are currently returning 1.99%.
Last but not least is Winnebago Industries (WGO), which is trading at 7x 2022 and 2023 consensus estimates. Winnebago shares are up 13% year-to-date and return 1.06%. It has been quite a journey for WGO this year; shares topped $ 87 in March, fell to $ 60 in June, flirted with $ 80 just a few weeks ago, and closed at $ 67.69 on Friday. The recent pullback came as Keybanc downgraded the rating of “sector-weighted” WGO stocks from “overweight”.
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