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Value Screeners Identify Good Opportunities for 2019

- By James Li

As the stock market tumbles from the highs first set around January 2018 and later around October 2018, investors might wonder if there are still any good investing opportunities for 2019. Fortunately, GuruFocus tracks the number of stocks meeting the criteria based on strategies from legendary value investors like Ben Graham, Peter Lynch, Joel Greenblatt (Trades, Portfolio) and Berkshire Hathaway Inc. (BRK-A)(BRK-B) co-managers Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio). As a result, we will discuss the records for the Ben Graham Net-Net, Undervalued Predictable, Buffett-Munger and Magic Formula screeners.


Dow skyrockets on first Friday of New Year, though still sharply below all-time highs

On Friday, the Dow Jones industrial average closed at 23,431.74, approximately 745 points or 3.29% higher from Thursday's close of 22,686.22, yet still approximately 3,400 points lower than the all-time high of 26,828.39 set on Oct. 3, 2018. CNBC columnist Fred Imbert listed several reasons for Friday's surge, including strong December job numbers and Federal Reserve Chairman Jerome Powell's announcement the Fed will be "patient" in raising interest rates. Stocks leading the surge included Netflix Inc. (NFLX), Intel Corp. (INTC) and Buffett's favorite tech stock, Apple Inc. (AAPL). Netflix closed at $297.57, approximately 9.72% higher from its previous close of $271.20, while Intel closed at $47.22, approximately 6.14% higher from its previous close of $44.49.

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Apple closed at $148.26, rebounding 4.27% from Thursday's close of $142.19, following its warning of shrinking revenue guidance for the December quarter.

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Ben Graham net-net

Graham defined a net-net as a company whose stock trades below its net current asset value. Key criteria for net-nets include the following:

  • A price to net-net working capital less than 0.66, where net-net working capital equals the sum of cash and cash equivalents, 75% of total receivables and 50% of total inventory, less total liabilities.
  • Positive operating cash flows over the trailing 12 months.
  • No meaningful debt compared to its cash position: ideally, the company must have interest coverage of at least five.



Table 1 shows the net-net counts for each region.

Date

Screener

Region

Count

Jan. 4, 2019

Graham Net-Net

USA

275

Jan. 4, 2019

Graham Net-Net

Canada

71

Jan. 4, 2019

Graham Net-Net

U.K.

54

Jan. 4, 2019

Graham Net-Net

Europe

171

Jan. 4, 2019

Graham Net-Net

Asia

598

Jan. 4, 2019

Graham Net-Net

Oceania

13

Jan. 4, 2019

Graham Net-Net

Latin America

1

Jan. 4, 2019

Graham Net-Net

Africa

3

Jan. 4, 2019

Graham Net-Net

India

148



Table 1

The number of Ben Graham net-nets per region can shed light on the market valuations for global regions. For example, a high number of net-nets in the U.S. and Asia suggest possible undervaluation in these markets. Figure 1 illustrates the implied market return for each global market based on current valuations.

Figure 1

Undervalued predictable and Buffett-Munger

Both the undervalued predictable and Buffett-Munger screeners center on Buffett and Munger's key criterion of investing in good companies at fair prices. Such companies have a GuruFocus business predictability rank of at least four stars and are undervalued either based on the price-earnings-to-growth (PEG) ratio or the discounted-earnings valuation. Table 2 shows the number of undervalued predictable stocks per region while Table 3 shows the number of Buffett-Munger stocks per region.

Date

Screener

Region

Count

Jan. 4, 2019

Undervalued Predictable

USA

77

Jan. 4, 2019

Undervalued Predictable

Canada

8

Jan. 4, 2019

Undervalued Predictable

U.K.

44

Jan. 4, 2019

Undervalued Predictable

Europe

122

Jan. 4, 2019

Undervalued Predictable

Asia

70

Jan. 4, 2019

Undervalued Predictable

Oceania

6

Jan. 4, 2019

Undervalued Predictable

Latin America

39

Jan. 4, 2019

Undervalued Predictable

Africa

5

Jan. 4, 2019

Undervalued Predictable

India

12



Table 2

Date

Screener

Region

Count

Jan. 4, 2019

Buffett-Munger

USA

31

Jan. 4, 2019

Buffett-Munger

Canada

5

Jan. 4, 2019

Buffett-Munger

U.K.

22

Jan. 4, 2019

Buffett-Munger

Europe

62

Jan. 4, 2019

Buffett-Munger

Asia

80

Jan. 4, 2019

Buffett-Munger

Oceania

0

Jan. 4, 2019

Buffett-Munger

Latin America

16

Jan. 4, 2019

Buffett-Munger

Africa

4

Jan. 4, 2019

Buffett-Munger

India

51



Table 3

We are pleased to announce we have rebalanced our model portfolios, including the undervalued predictable and Buffett-Munger model portfolios. The former returned an annualized 9.58% over the past 10 years while the latter returned an annualized 11.94%. New stocks added to the undervalued predictable model portfolio with the highest gains on Friday include Alliance Data Systems Inc. (ADS), Westwood Holdings Group Inc. (WHG), Cracker Barrel Old Country Store Inc. (CBRL), Encore Capital Group Inc. (ECPG) and Torchmark Corp. (TMK).

Greenblatt magic formula

Greenblatt, manager of Gotham Asset Management, developed a "magic formula" involving two financial calculations: earnings yield and return on capital. The guru defined the former as the ratio of earnings before interest and taxes (EBIT) to total enterprise value and the latter as the ratio of EBIT to average of net fixed assets and net working capital. Table 4 shows the number of Greenblatt Magic Formula stocks per region.

Date

Screener

Region

Count

Jan. 4, 2019

Magic Formula

USA

5190

Jan. 4, 2019

Magic Formula

Canada

574

Jan. 4, 2019

Magic Formula

U.K.

1898

Jan. 4, 2019

Magic Formula

Europe

5288

Jan. 4, 2019

Magic Formula

Asia

11744

Jan. 4, 2019

Magic Formula

Oceania

573

Jan. 4, 2019

Magic Formula

Latin America

835

Jan. 4, 2019

Magic Formula

Africa

201

Jan. 4, 2019

Magic Formula

India

3585



Table 4

Premium members of GuruFocus have access to all our value screeners, including the All-in-One Screener that allows you to generate your own screens based on over 300 filters, including customized filters.

Disclosure: No positions.

Read more here:

  • 5 Buffett-Munger Stocks Producing High Gains for 2018
  • 6 Most Broadly Held Guru Stocks Following a Volatile Christmas
  • The Best Investment Advice I Ever Got


This article first appeared on GuruFocus.