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.

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John Bajkowski is president of AAII.


John Nolan from Texas posted about 1 year 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 Illinois posted about 1 year ago:

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

Joan Madden from Massachusetts posted 8 months ago:

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