Benjamin Graham Bear Market Stocks
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)||
|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|
Exchange Key: M=NASDAQ; N=New York Stock Exchange.
Source: AAII's Stock Investor Pro, Thomson Reuters, and I/B/E/S. Data as of 3/13/2009.