I am happy to report a couple new names are appearing on my modified Benjamin Graham "Stocks for the Defensive Investor" screen. I now count a total of 15 qualifiers, the most I've seen in years, and that's up from 13 in July. Below are the rather stringent criteria that I use:
- 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
UFP Industries (UFPI) , which makes and markets wood products, is the largest of the newbies, sporting a $4.6 billion market cap. Currently trading at 8x next year's consensus earnings estimates, UFP yields 1.34%. UFP Industries shares are down about 18% year to date; they hit $92 in early August but have pulled back to about $75.
Resources Connection (RGP) , which provides business consulting services, trades at about 9x next year's consensus estimates. Currently yielding 3.4%, its shares are down 9% year to date and have fallen 25% since topping out at $22 in early August. Last week Resources Connection reported better-than-expected first-quarter earnings (60 cents a share versus the 48-cent consensus).
As markets continue to gyrate, I expect the list of qualifiers will continue to grow, perhaps creating some opportunities for the coming year.
