In John Reese’s book “The Guru Investor“, he shows a stock screen based on Benjamin Graham’s philosophies. A backtest of the screen produced a 20% return versus 4% for the S&P 500 over the 2003-2008 period. The screen rules are:
- All stocks except technology
- Sales > $340 million
- Current ration > 2 (less than 2 only if its a utility or telecom)
- Long-term debt < Net current assets
- Positive earnings every year for the past 5 years
- Past 10-year growth greater than 30%. Specifically: average 3-year earnings (1,2,3) to average 3-year earnings (7,8,9) must exceed 1.30
- P/E < 15
- P/B x P/E < 22
- Total Debt to Equity < 100% (less than 230% if utilities, telecom, railroads)
I ran this screen starting with 6119 stocks in U.S. equities and after the above, there were only 6 stocks left!
Out of curiosity, I ran the above 6 tickers through my value model to see where they rank. The result was that FLXS ranked 14%, HIBB ranked 1%, MLR ranked 6%, SAFM ranked 7%, UTHR ranked 26% and HERB doesn’t rank. So in my book, I would start looking at HIBB, MLR, and SAFM.
Good hunting!
