The ranks of the names meeting my modified Benjamin Graham "Stocks for the Defensive Investor" criteria continue to grow. Ten weeks ago, there were 10, a significant number in its own right. Now there are 13. It is not easy to make the cut, given the rather stringent criteria:
- 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 biggest surprise remains Intel (INTC) , which I believe is the largest name that has graced the list since I began running this screen many years ago. Since my May column on Intel, INTC has fallen another 11% and trades at 14.5x and 12x 2023 and 2024 consensus earnings estimates, respectively, while yielding 3.7%.
Winnebago Industries (WGO) is also a holdover from May. After dipping from $56 to $44 between mid and late May, shares have recovered to the $59 level. Winnebago now trades at about 9x and 6.5x 2023 and 2024 consensus estimates, respectively.
The other eight from May are Johnson Outdoors (JOUT) , Reliance Steel (RS) , Commercial Metals (CMC) , Encore Wire (WIRE) , Preformed Line Products (PLPC) , Superior Group (SGC) , Mueller Industries (MLI) and Amcom Distributing (DIT) .
Newcomers include Sturm, Ruger & Co. (RGR) , Evercore Inc. (EVR) and Nucor Corp. (NUE) . RGR is currently trading at 11.5x 2023 consensus earnings estimates and yields 5.28% (based on trailing dividends as the dividend is not consistent; last quarter it was 68 cents, which implies an indicated yield of 4.3%). EVR trades at 11.5x and 12x 2023 and 2024 consensus earnings estimates, respectively, and yields 2.88%. NUE, which is a repeat offender from years past, trades at 12x and 10x 2023 and 2024 consensus earnings estimates, respectively, and yields 1.7%.
It is somewhat unbelievable to me that Intel still makes the cut and is even cheaper than it was in May.