Benjamin Graham, considered to be the father of value investing, remains relevant today. His great work The Intelligent Investor from time to time, a must-read book even if you don’t consider yourself a value investor.
Five Graham-inspired stock screens, including one based on his “stocks for the defensive investor.”
- Market Capitalization size. A company must have at least $500 million in sales on a trailing 12-month basis. (Graham used a $100 million minimum and at least $50 million in total assets.)
- Strong financial condition. A firm must have a “current ratio” (current assets divided by current liabilities) of at least 2.0. It must also have less long-term debt less than working capital.
- Dividend Distribution. The company must have paid a dividend for the past seven years. (Graham required 20 years.)
- Earnings growth. Earnings must have expanded by at least 3% compounded annually over the past seven years. (Graham mandated a one-third gain in earnings per share over the latest 10 years.)
- Price-to-earnings ratio. A stock must have had a 15 or lower average P/E over the past three years. The price-to-earnings ratio times the price-to-book ratio must be less than 22.5.