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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 2 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 2 years ago:

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


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