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Stingy Investor Tip Sheet

Graham gone wild

What's up with all these Graham stocks?

That's the gist a question I got today from a kind reader. He spotted my Simply Spectacular article in this October's MoneySense magazine. But he was confused by the many different lists of Graham-style stocks that he was finding. That includes a list from today's Globe and Mail and my annual list of defensive Graham picks which appears in the Canadian MoneySaver.

Let's step back and walk through the various methods on offer. My Simply Spectacular article is based on Graham's Simple Way. Here stocks are selected based on low price-to-earnings ratios and low leverage ratios. But only the largest candidates get the nod.

Today's article from John Heinzl called Now may be the time for 'margin of safety' uses a different set of criteria for Graham stocks. His method appears to be an approximation of Graham's test for defensive investors. Stocks with large current ratios, low debt levels, strong earnings growth, low price-to-earnings and low price-to-book-value ratios are desired.

I have my own take on Benjamin Graham's method for defensive investors which appears in the Canadian MoneySaver each fall. You can read last year's article over at 5 Graham Stocks for 2008. I'll officially update this list in about a week and the article should be published in the November magazine.

In a nut shell, my screen looks for low price-to-earnings and low price-to-book-value ratios, high current ratios, plus some earnings growth and dividend growth. Here are a few U.S. stocks that currently pass the test.

Company			Price	 P/E	P/B   Yield
======================  ======  =====  =====  =====
Gerdau AmeriSteel (GNA)	$10.24	 5.82	1.06   0.8%
Rowan Companies (RDC)	$30.53	 7.05	1.33   1.3%
Timken (TKR)		$26.87	 9.84	1.19   2.7%
Tsakos Energy Nav (TNP)	$29.79	 4.81	1.19   6.0%
Skywest (SKYW)		$19.68	 8.07	0.90   0.6%
Source, September 17, 2008

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To make matters more confusing, you can also discover which Dow 30 and S&P/TSX60 stocks pass Graham's combined low P/E and low P/B criteria over at the Graham 60 and the Graham DJIA.

Phew, that's a load of Graham stocks. But all of the screens mentioned pay homage to Benjamin Graham and are at least loosely based on his techniques. Graham offered up quite a number of different methods during his lifetime and I haven't even mentioned all of them. So, it is hard to call any particular approach the one-and-only Graham way. Just think of the various screens as a pallet of tools which can be used to find some interesting stocks.

09/17/2008   6:00 PM EST   Permlink   save & shareGraham

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