• The First Cut
  • Benjamin Graham Bear Market Stocks

    by John Bajkowski

    Benjamin Graham Bear Market Stocks Splash image

    Benjamin Graham described a mania as “the complete insulation of all lessons of history whether remote or directly at hand.” Security prices can become disconnected from intrinsic value just as easily during a severe market downturn. Graham observed that the clear-cut undervaluation of leading companies typically only occurs during bear markets. His most basic approach looked for stocks trading with a low price-to-net-current-assets ratio. The ratio compares the current stock price to 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. Graham recommended that a stock be purchased only if the price was two-thirds or less of net current assets. However, even during today’s bear market, it is rare to find a stock selling that cheaply unless it is in financial trouble. The First Cut simply screens for S&P 500 stocks 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 help eliminate firms in financial trouble, all of the First Cut stocks have positive earnings along with positive cash flow from operations for the most recent fiscal year and over the last four quarters. Stocks are also required to have debt levels below their industry norm.

    The 30 S&P 500 stocks with the lowest price-to-net-current-assets ratio are presented below. Additional price multiples are presented to provide a feel for how these stocks measure up. The consensus estimated long-term earnings growth rate helps to judge the market’s expected growth prospects, while the relative strength indexes highlight the performance of these stocks relative to the S&P 500 index.

    Company (Exchange: Ticker) Price to
    Net
    Current
    Assets
    (X)
    Price
    to-
    Book
    Value
    (X)
    P/E
    Ratio
    (X)
    Div
    Yield
    (%)
    Est EPS
    Growth
    Rate
    (3-5 Yr)
    (%)
    Total
    Liab
    to
    Assets
    (%)
    Relative
    Strength
    Index
    Share
    Price
    (3/13)
    ($)
     
     
     
    13 Wk 52 Wk  
    (%, S&P = 0) Description
    Titanium Metals Corp. (N: TIE) 1.55 0.82 5.5 6.1 -4.9 21.1 -34 -46 4.89 titanium prods
    Forest Laboratories (N: FRX) 2.02 1.55 7.5 0 2.5 17.6 -1 -8 20.79 ethical drugs
    Molex Incorporated (M: MOLX) 3.01 0.85 36.8 5.2 11 27.4 2 -10 11.79 electronic components
    Genuine Parts Co. (N: GPC) 3.12 1.89 9.5 5.8 5.8 51.4 -17 22 27.6 auto replace parts
    QLogic Corporation (M: QLGC) 3.32 2.02 12 0 10.4 18.8 -4 16 10.22 network solutions
    Yahoo! Inc. (M: YHOO) 3.39 1.67 48.3 0 14.59 17.8 19 -15 13.51 global Internet brand
    Analog Devices, Inc. (N: ADI) 4.01 2.44 13.9 4 15 17.7 21 24 20.16 integrated circuits
    Robert Half Int'l (N: RHI) 4.12 2.48 10.1 2.9 12.67 30.3 5 12 16.47 staffing services
    Tiffany & Co. (N: TIF) 4.23 1.48 8.3 3.5 10.83 47.6 0 -12 19.68 fine jewelry & crystal
    Intuitive Surgical (M: ISRG) 4.27 3.18 20.2 0 21 14.1 -11 -37 103.03 surgical accessories
    Bed Bath & Beyond Inc. (M: BBBY) 4.32 2.06 13 0 12.64 32 9 40 22.93 domestics merchandise
    Baker Hughes Inc. (N: BHI) 4.33 1.32 5.5 2 0.75 42.6 12 -26 29.33 oilfield services
    Juniper Networks, Inc. (M: JNPR) 4.72 1.32 15.8 0 16.4 17.9 -2 0 14.74 network services
    Broadcom Corporation (M: BRCM) 4.76 2.64 49 0 14 17.9 25 86 19.11 semiconductors
    Apple Inc. (M: AAPL) 4.8 3.72 17.8 0 17.15 46.5 14 30 95.93 PCs, iPods, iPhones
    Stryker Corporation (N: SYK) 4.82 2.5 12.2 1.2 15.53 28.9 -2 -2 33.81 orthopaedic prods
    Cognizant Technology (M: CTSH) 5.01 3.11 14.6 0 18.4 17.2 34 27 20.97 information technology
    Fastenal Company (M: FAST) 5.37 3.83 15.7 2.4 15.6 12.4 7 23 29.44 indus & construct supplies
    Texas Instruments Inc. (N: TXN) 5.37 2.23 11.3 2.7 9.29 21.8 21 -3 16.21 semiconductors
    CF Industries Holdings (N: CF) 5.48 2.67 5.6 0.6 na 44 62 -1 68.61 fertilizers
    Jacobs Engineering Group (N: JEC) 5.79 2.1 11.4 0 16 45.3 0 -7 40.35 tech, prof & construct servs
    Google Inc. (M: GOOG) 6.11 3.61 24.4 0 18.63 11.1 19 27 324.42 Internet search engine
    Fluor Corporation (N: FLR) 6.53 2.69 10.1 1.3 12.5 58.4 -4 -1 39.85 engineering & mgmt servs
    Expeditors International (M: EXPD) 6.76 4.15 19.5 1.2 14.57 35 -2 13 26.74 global logistics servs
    QUALCOMM, Inc. (M: QCOM) 6.94 3.54 22.3 1.7 10.67 26.9 26 59 36.75 digital wireless servs
    FLIR Systems, Inc. (M: FLIR) 7.1 3.4 16 0 19.19 32.5 -5 34 20.46 thermal imaging systems
    Big Lots, Inc. (N: BIG) 7.75 2.11 10.7 0 16 45.9 51 67 20.13 broadline closeout retailer
    eBay Inc. (M: EBAY) 8.12 1.38 8.8 0 11.06 28.9 -3 -22 11.93 on-line marketplace
    Teradata Corporation (N: TDC) 8.18 3.86 12.3 0 8.33 45.7 33 21 17.12 data warehousing
    Citrix Systems, Inc. (M: CTXS) 9.47 2.2 24.1 0 11.1 28.8 17 25 23.09 technology solutions
    John Bajkowski is president of AAII.


    Discussion

    John Nolan from TX posted over 3 years ago:

    I wonder why the prices given for the following stocks ( did not check any ohters) was so diferent from the actual. TIE listed as of 3/13 at 4.89----- 11.00 is more like it. Didn't see a price near 5.00 for many years back. PE was 17.8 verse 5.5 in chart.
    Similar type comments for FRX and GPC!!
    In accurate data is worst than none at all!!


    Charles Rotblut from IL posted over 3 years ago:

    John, the data is as of March 13, 2009. On that date, TIE did close at $4.89. -Charles


    You need to log in as a registered AAII user before commenting.
    Create an account

    Log In