The First Cut: Low Price Relative to Net Assets

    by John Bajkowski

    The First Cut: Low Price Relative To Net Assets Splash image

    When markets become volatile, the first reaction for many investors is to turn away from stocks. However, seeking out values among fallen stocks often proves to be a strong motivation to bring investors back into the market, and the teachings of Benjamin Graham serve as the inspiration for this issue’s First Cut. His most basic approach looked for stocks trading with a low price-to-net-current-assets ratio.

    The ratio compares the current market price of a stock to the current assets (cash, accounts receivable, inventory, etc.) less all debt, both short- and long-term including preferred stock. The First Cut calculation modifies this ratio to add long- and short-term investments to assets. The First Cut screens for exchange-listed stocks trading with a low ratio of price to net current assets. Stocks in the financial sector were excluded because their financial statements are not directly comparable to other industries.

    ...To continue reading this article you must be registered with AAII.

    Gain exclusive access to this article and all of the member benefits and investment education AAII offers.
    JOIN TODAY for just $29.
    Register for FREE
    to read this article and receive access to future articles.

    Log in
    Already registered with AAII? Login to read the rest of this article.
    → John Bajkowski