Selecting undervalue stocks

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In the intelligent investors by Benjamin Graham, 7 quantitative criteria are examined. Let’s take a look at these criteria:

1. Adequate size of enterprise

  • Exclude small companies

2. Sufficiently strong financial conditions

  • Current asset at least 2x current liability.
  • Long term debt < working capital
  • Utilities / telco, debt < 2x book value (debt/equity < 2)

3. Earning stability

  • At least positive earnings declared in last 10 years

4. Dividend record

  • Uninterrupted payments for at least 20 years

5. Earnings growth

  • At least 1/3 increase in EPS in last 10 years, using 3 years average at beginning and end

6. Moderate Price/Earning Ratio

  • Current price should not exceed 15x earnings averaged over last 3 years

7. Moderate ratio of price to asset

  • Current price should not exceed 150% of last reported book value
  • Allowance for lower P/E but selling at higher book value (e.g P/E of 9, 250% book value)

For the whole portfolio, the earning to price ratio should at least be as high as the current high grade bond rate.

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One thought on “Selecting undervalue stocks

  1. Hi,

    Thanks for your summary of the intelligent investor. Are there any companies currently in SGX that match all those criteria? Based on those criteria, probably only blue chips companies are able to meet those expectations I guess.

    Like

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