This is from a recent report put out by Shawn Kim of Morgan Stanley South Korea. We took three segments which focus on undervalued stocks based on Ben Graham formula, Joel Greenblatt magic formula, and companies with a Piotroski score of 9. This first screen is to identify high quality companies (high ROCE) that are also cheap (low EV/EBITDA). The table here shows the top 20 ranked companies sorted by most undervalued score.
Stocks covered by Morgan Stanley analysts with Overweight ratings are shaded grey.
Guidelines Described For Value Investors In Benjamin Graham’s Book
Morgan Stanley applies to the Korean market the guidelines described for value investors in Benjamin Graham’s book, The Intelligent Investor (Chapter 14).
- Universe: KOSPI 200 & MSCI Korea / Data: As of June 24, 2013
- Strong earnings track record – EPS growth > 160% last five years
- Inexpensive valuation: 1) P/ (three-year average EPS) is > 25% discount to market multiple. 2) P/E x P/BV is more than 40% discount to market multiple.
- Stocks covered by Morgan Stanley analysts with Overweight ratings are shaded grey.
A total of 6 stocks with Piotroski score of 9 (excluding Financials).
Piotroski score rates stocks on financial strength and profitability. Each stock is given one point each time it passes one of the nine criteria:
1) Positive net income, 2) positive operating cash flow, 3) earnings quality – operating cash flow is greater than net income, 4) decreasing debt, 5) increasing working capital, 6) improving productivity, 7) growing profitability, 8) issuing stock, 9) competitive position.