Introduction
The Graham Enterprising Investor screen focuses on the valuation as well as the companies that exhibit solid financial strength. Additionally, the company shall be highly liquid and should pay a dividend. This filters out the low quality companies and we are presented with stocks that may be undervalued but have good quality operations.
In this screen, we focused on the large cap stocks that satisfy the Graham Enterprising Investor screen criteria.
Screen Details
This screen looks for large cap stocks over $5 billion in market capitalization with good valuation and quality operations. The quality of the operation can be judged by a continuous profitability, presence of a dividend and good liquidity as exhibited by the current ratio:
- Dividend Yield > 0
- Current Ratio > 1.5
- Long Term Debt/(Current Assets - Current Liabilities) between 0 and 1.1
- EPS > 0 for each of the previous 5 years
- EPS now > EPS 5 years ago
- P/E Ratio in the lowest 30% of the sector
The Screen Results
Stock | Company | Dividend Yield | P/E Ratio | Current Ratio |
|---|---|---|---|---|
ADM | Archer-Daniels Midland | 2.5% | 18.9 | 1.5 |
AL | Air Lease | 1.3% | 11.1 | 3.6 |
DPZ | Domino's Pizza | 1.0% | 31.9 | 1.9 |
IDA | Idacorp | 2.8% | 21.6 | 2.2 |
KIM | Kimco Realty | 3.6% | 9.0 | 8.0 |
LEN | Lennar | 0.9% | 10.8 | 21.8 |
LII | Lennox International | 0.9% | 36.1 | 1.6 |
RS | Reliance Steel & Aluminum | 1.8% | 27.6 | 5.1 |
STOR | STORE Capital | 4.1% | 41.3 | 3.7 |
TOL | Toll Brothers | 1.1% | 16.3 | 6.7 |
TSN | Tyson Foods | 2.3% | 13.7 | 1.8 |
UI | Ubiquity | 0.6% | 35.7 | 2.6 |
VIAC | ViacomCBS | 2.4% | 10.6 | 1.7 |
Notes and Observations
As you can see that filtering for the lowest 30% P/E ratios in a sector does not help much when entire sectors and overall markets are heavily overvalued. Many of these stocks have egregious earnings multiple that may not be sustainable. However, there are some stocks that deserve a second look.
- ADM: The P/E is on a tad high side however you are banking on the strong business fundamentals and solid history of increasing dividends.
- AL: The Altman-Z score indicates likelihood of bankruptcy in the near future is non-trivial. We will avoid
- KIM: The Altman-Z score indicates likelihood of bankruptcy in the near future is non-trivial. We will avoid. Kimco happens to be one of the oldest/largest shopping mall REITs in the country. However the key phrase is "shopping malls" and they are on life support right now and I do not have a reason to believe that the weakness in the shopping mall is temporary.
- TSN: The financials look attractive at the first pass. Will review further.
- VIAC: The stock got caught up in the Archegos Capital Management saga and as the hedge fund imploded, the stock has been sold off in the ensuing unwinding trades. Current valuations are back into realistic realm. I will look into this stock for a potential entry.
Ending Note
We will move forward with deeper diligence on TSN and VIAC.