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 msn.com, September 17, 2008
login to see the full table
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
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.