It's time for another look at a stock screen I utilize based on Benjamin Graham's "Stocks for the Defensive Investor," a methodology laid out in Graham's 1949 masterpiece "The Intelligent Investor". This has been an interesting screen over the years, although the version I've been using has been modified from what Graham used. To wit:
- Adequate size. A company must have at least $500 million in sales on a trailing 12-month basis. (Graham used a $100 million minimum and at least $50 million in total assets.)
- Strong financial condition. A company must have a current ratio (current assets divided by current liabilities) of at least 2.0. It also must have less long-term debt than working capital.
- Earnings stability. A business must have had positive earnings for the past seven years. (Graham used a 10-year minimum.)
- Dividend record. The company must have paid a dividend for the past seven years. (Graham required 20 years.)
- Earnings growth. Earnings must have expanded by at least 3% compounded annually over the past seven years. (Graham mandated a one-third gain in earnings per share over the latest 10 years.)
- Moderate price-to-earnings (P/E) ratio. A stock must have had a 15 or lower average P/E over the past three years.
- Moderate ratio of price to assets. The price-to-earnings ratio times the price-to-book value ratio must be less than 22.5.
- No utilities or retailers
The last time I wrote on this subject, in early November, there were just three qualifiers: Commercial Metals CMC (up 11% since then), Methode Electronics MEI (up 14%) and Winnebago Industries WGO (up 10%). At the time, CMC and MEI were repeat offenders, having qualified when I'd run the same screen in February.
This go-around, there are five qualifiers, and all are new blood.
Industrial manufacturing company Worthington Industries (WOR) , the largest of the bunch with a $2.9 billion market cap, trades at 12x next year's (May 2023) consensus earnings estimates and yields about 2%.
Recreational products company Johnson Outdoors (JOUT) , which has dropped 40% since April, trades at about 10.5x next year's (September 2023) consensus estimates and yields .3%. JOUT is covered by just one analyst.
Towing and recovery equipment name Miller Industries (MLR) , which has appeared from time to time on other value-oriented screens, trades at 15x trailing earnings. There are no forward estimates, as no analysts currently cover the company. MLR yields 2.1%.
Uniform maker Superior Group of Companies (SGC) trades at 9x next year's "consensus" estimate (just one analyst covers it) and yields about 2.2%.
And Preformed Line Products (PLPC) , which makes cable and anchoring products used in telecommunications, cable and energy, trades at 10x trailing earnings. PLPC also currently garners no analyst coverage and yields 1.3%.
It's good to have some new qualifiers in ValueLand.