It’s time to dust off your old copy of The Intelligent Investor and revisit some of Benjamin Graham’s classic stock investing principles. Today we’ll focus on Graham’s famous Enterprising Investor stock screen by highlighting three stocks currently qualifying for the strategy.
Graham discusses the screen at length in chapter 15 of The Intelligent Investor. He spells out six criteria which enterprising investors should look for when implementing a stock investing strategy.
Description
According to Graham, an enterprising investor buys from a list of common stocks "that can be identified as undervalued by logical and reasonably dependable standards." The screen finds stocks which are "rather similar to those we suggested for the Defensive Investor, but not so severe."
The first criteria is concerned with the stock's price relative to recent earnings, and the next four are concerned with the company's "past performance and current financial position." The last requirement values the stock based on the company's net tangible assets.
Criteria
Here's a breakdown of the five requirements for the Enterprising Investor stock screen as described on TheStockMarketBlueprint.com:
1.) P/E TTM < 10
2.) a. Current Ratio > 1.5
b. Long-Term Debt < 110% of Net Current Assets
3.) Positive Earnings Streak ? 5 Years
4.) Dividends Per Share > 0
5.) Net Income % Growth, 5 Year CAGR > 0
Valuation
Once a stock passes all five of the above filters, its current price must be less than its intrinsic value before it can be a good investment. The intrinsic value is determined by multiplying the company's net tangible assets by 120%.
Therefore, the sixth criteria looks like this:
- Price < Net Tangible Assets x 1.2
Three Stocks Enterprising Investors Should Buy
According to the Enterprising Investor stock screen on The Stock Market Blueprint, the following stocks all qualify for Graham's criteria.
Celadon Group, Inc. (NYSE:CGI)
Celadon Group, Inc., through its subsidiaries, provides transportation services between the United States, Canada, and Mexico. The company operates through two segments, Asset-Based and Asset-Light.
The company also provides tractor leasing and ancillary services to owner-operators. It transports various types of freight comprising tobacco, consumer goods, automotive parts, home products and fixtures, lawn tractors and assorted equipment, light bulbs, and various parts for engines.
Celadon Group, Inc. was founded in 1985 and is headquartered in Indianapolis, Indiana.
- Price/Earnings : 6.76
- Current Ratio: 1.81
- Working Capital: $152 Million
- Long-Term Debt: $152 Million
- Positive Earnings Streak: 5+ Years
- Dividends Paid : $0.08/share
- Net Income % Growth, 5 Year CAGR: 56.8%
- Price/Intrinsic Value: 62% (closing price on 7/19/16)
- Current Price: $8.50/share (closing price on 7/19/16)
Haverty Furniture Companies, Inc. (NYSE:HVT)
Haverty Furniture Companies, Inc. operates as a specialty retailer of residential furniture and accessories in the United States. The company also offers mattress product lines under the Sealy, Serta, Stearns & Foster, and Tempur-Pedic names.
It sells home furnishings through its retail stores, as well as through its Website. As of December 31, 2015, the company operated 121 stores in 16 states in the Southern and Midwest regions.
Haverty Furniture Companies, Inc. was founded in 1885 and is based in Atlanta, Georgia.
- Price/Earnings : 8.16
- Current Ratio: 2.51
- Working Capital: $124 Million
- Long-Term Debt: $0
- Positive Earnings Streak: 5+ Years
- Dividends Paid : $0.38/share
- Net Income % Growth, 5 Year CAGR: 26.9%
- Price/Intrinsic Value: 63% (closing price on 7/19/16)
- Current Price: $18.42/share (closing price on 7/19/16)
Valero Energy Corp. (NYSE:VLO)
Valero Energy Corporation operates as an independent petroleum refining and marketing company in the United States, Canada, the Caribbean, the United Kingdom, and Ireland. It operates through two segments, Refining and Ethanol.
The Refining segment is involved in refining, wholesale marketing, and bulk sales and trading activities. The Ethanol segment produces and sells ethanol and distillers grains primarily to refiners and gasoline blenders, as well as to animal feed customers.
The company also operates a 50-megawatt wind farm; convenience stores; filling stations, as well as truckstop, cardlock, and home heating oil facilities; and credit card business.
Valero Energy Corporation was founded in 1955 and is headquartered in San Antonio, Texas.
- Price/Earnings : 7.08
- Current Ratio: 2.19
- Working Capital: $8.1 Billion
- Long-Term Debt: $0
- Positive Earnings Streak: 5+ Years
- Dividends Paid : $1.90/share
- Net Income % Growth, 5 Year CAGR: 65.23%
- Price/Intrinsic Value: 97% (closing price on 7/19/16)
- Current Price: $50.85/share (closing price on 7/19/16)
Implementation
Graham states that the Enterprising Investor strategy finds companies "that are making a good showing, have a satisfactory past record, but appear to hold no charm for the public." He says a group of these stocks "should offer good promise of satisfactory investment results." Obtaining this group can be accomplished by regularly investing equal amounts in the qualifying stock with the lowest price in relation to intrinsic value.
Disclaimer: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Mitchell Mauer is the Founder of TheStockMarketBlueprint.com. The Stock Market Blueprint is a free site that finds value stocks for investors building long-term wealth. The site’s investment philosophy is anchored in principles established by Benjamin Graham and his most reputable followers over the last 100 years.
