I was running screens last night for various parts of Ben Graham's 10-point checklist when I made a most disturbing recovery. Very few stocks passed any additional combinations using book value, dividends, earnings growth and financial strength. The few I did find were well below $100 million in market cap and far too small and illiquid to discuss.
I do not recall this ever happening before in the course of my career. I was a little concerned that I had a flaw in my database, so I checked some of the other value oriented sites and screeners and discovered they were having the same problem I was finding safe and cheap stocks using these time tested criteria.
This, of course, made me very curious, so I started running some other Graham based screens. I started by looking at the net current asset stocks, which are those that traded for less than two-thirds of net current assets minus all preferred issues and liabilities. This screen is very short at the moment, and contains no stocks large enough to mention here. Yet some of them are of interest. There are several Web-based screeners you can use to find these tiny bargains and they are worth picking up.
Next, I looked at the screen for defensive investors based in Graham's classic investment book, The Intelligent Investor. These names have a long history of dividend payments, reasonable earnings growth and solid financials and trade at reasonable multiples of book value and trailing earnings. In ordinary times, this screen would usually produce a list of 30 or more stocks that an investor could use to put together a nice portfolio of reasonably priced leading companies that offered good upside with less risk.
These are not normal times. The Graham defensive investor strategy screen that I use produced just two companies worth consideration by long-term conservative investors. While I am not a market timer and never make predictions about market direction, I confess that I find this disconcerting.
National Presto Industries NPK seems to be on the list every time I run this screen. The company makes small appliances, including electric skillets, pizza ovens, corn poppers and waffle irons. It is a reasonably safe bet that most of us have one or more of their products on our shelves or up in our attics. The defense products section makes ammunition, fuses and a host of other ordinance related products. National Presto also has a division that makes private label adult incontinence products. It is a weird mix of products, but they have been able to make it work over the years.
National Presto has been profitable and paid a dividend every year for the past 10 years. The company has no long-term debt and the current ratio is almost 5, so there is some margin of safety in the balance sheet. The stock is trading at 1.6x book value and 12x earnings. So while it is not super cheap, it is reasonably priced. At today's price, the stock yields 1.38%.
Preformed Line Products PLPC is also makes the defensive investor list. The company manufactures wire products and related hardware that is used by telecommunications, cable and data communication industries around the world. This business should do really well when we finally see the type of growth that leads to new projects from the energy and telecom companies that will create demand for Preformed Lines products.
The company has stayed profitable and paid a dividend for the past 10 years. It passes the safety tests with very little long-term debt and a current ratio of 3.7. At 16x earnings and 1.15x book value the shares are not really "Tim cheap" but they are reasonably priced from a long-term perspective.
After the market's extended run, I knew that the Graham screens would produce a shorter list of stocks than usual. But I was really surprised by how many combination of the 10 criteria produced no results at all and that the defensive list found only two stocks. It is taking more effort to put together a portfolio of safe and cheap stocks with new money.