It has been quite a while since I wrote about the stock screen I use based on Benjamin Graham's "Stocks for the Defensive Investor," a methodology laid out in Graham's 1949 masterpiece "The Intelligent Investor." The reason I haven't written about it is that the screen for many months was coming up empty, with no qualifiers. The criteria I've used for years have been modified from Graham's, but the principles behind the search are the same:
- 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 February, there were just three qualifiers: Commercial Metals (CMC) (up 39% since then), Methode Electronics (MEI) (up 11%) and Standard Motor Products (SMP) (up 19%). Two of them, CMC and MEI, are back on the list, repeat offenders.
Commercial Metals, which manufactures steel and metal products, trades at 9x next year's consensus estimates, 11x 2023 consensus estimates and yields 1.74%. Its shares are up 57% year to date.
Methode Electronics, which occasionally has appeared in other value-related searches I utilize, trades at 12.5x 2022 consensus estimates (its fiscal year ends in April), 11x 2023 estimates and yields 1.3%. It shares are up 10% year to date.
Newcomer (although I've also seen this name on several of my value screens over the years) Miller Industries (MLR) , which makes and sells towing equipment, trades at about 14.5x trailing 12-month earnings and yields 1.99%. Miller Industries currently garners no analyst coverage, so there are no earnings estimates available. Its shares are down 5% year to date and currently yield 1.99%.
Last but not least is Winnebago Industries (WGO) , which trades at 7x 2022 and 2023 consensus estimates. Winnebago shares are up 13% year to date and yield 1.06%. It has been quite a ride for WGO this year; shares topped out in the $87 range back in March, fell into the low $60s in June, flirted with $80 just weeks ago, and closed Friday at $67.69. The recent pullback came as Keybanc downgraded WGO shares to "sector weight" from "overweight."
