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 |
|---|---|---|---|---|
AL | Air Lease | 1.3% | 9.3 | 4.5 |
DHI | D. R. Horton | 1.3% | 12.5 | 9.8 |
FL | Foot Locker | 3.3% | 9.9 | 2.0 |
EMN | Eastman Chemical | 3.1% | 14.4 | 1.7 |
HCA | HCA Healthcare | 1.2% | 13.8 | 1.5 |
HST | Host Hotels & Resorts | 4.7% | 11.1 | 8.5 |
KSS | Kohl's | 4.5% | 13.1 | 1.7 |
LEN | Lennar | 0.3% | 9.7 | 14.4 |
NUE | Nucor | 2.9% | 9.4 | 3.4 |
OC | Owens-Corning | 1.4% | 14.3 | 1.7 |
PWR | Quanta Services | 0.4% | 18.4 | 1.8 |
RS | Reliance Steel & Alumunum | 1.9% | 12.4 | 4.0 |
SNX | Synnex | 1.2% | 13.6 | 1.6 |
TOL | Toll Brothers | 1.1% | 8.6 | 7.6 |
TXT | Textron | 0.2% | 12.8 | 2.2 |
UI | Ubiquiti | 0.6% | 39.4 | 2.6 |
Notes and Observations
As mentioned in the earlier screens, I am avoiding the home builders and hotel/resort stocks. Additionally, the commodities and metals market may be on the cyclical downturn right now. That removes TOL, RS, NUE, LEN, HST and DHI from consideration. AL and FL is already on our further review list.
- EMN: Close to fair value but with nice growing dividend. No further interest as a value investment.
- HCA: Looks solid and priced at a discount. Strong margins and a more or less recession proof business. Interested and will review further.
- KSS: Valuation is not compelling yet given the retail industry headwinds. There is a great 4.5% and growing dividend to compensate though, but at this time we will stay away.
- OC: Fully valued.
- PWR: Fully valued.
- SNX: Cheap compared to expected growth estimates. I expect the growth will be slower as the economy slows down.
- TXT: Close to fully valued.
- UI: Expensive.
Ending Note
We will look into HCA in greater detail. At this time of the economic cycle, it is critical to stay conservative and avoid any stock that is other than undervalued and solidly run.
