Benjamin Graham was an economist and professional investor who taught Warren Buffett, Irving Kahn, Walter J. Schloss and other famous investors at Columbia Business School.
Buffett, who credits Graham with grounding him with a sound intellectual investment framework, describes Graham as the second most influential person in his life after his own father. In fact, Graham had such an overwhelming influence on his students that two of them, Buffett and Kahn, named their sons after him.
In the preface to Graham's book, The Intelligent Investor, Buffett calls it "by far the best book about investing ever written."
Graham's Defensive Grade Criteria:
Previously, in How to Build a Complete Benjamin Graham Portfolio, we had seen how to build portfolios of various grades of stocks recommended by Graham.
The highest grade of stocks recommended by Graham are called Defensive stocks. The criteria that Graham specified for identifying Defensive stocks are as follows:
Defensive Graham Stocks for 2013:
Applying Graham's 16-step analysis to 4700 NYSE and NASDAQ stocks brings up the following list of stocks that meet all the Graham defensive criteria as well as have prices lesser than β or within 80% of β the Graham Number.
1. HollyFrontier Corp (HFC, Financial)
With a sales figure nearly 40 times more than that required by Graham and an earnings growth figure nearly 5 times more, HFC has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets Graham's defensive criteria for assets, liabilities and debt as well. HCF is also selling for less than its Graham Number of $57.31 making it the first fully defensive Graham stock for 2013.
2. Helmerich & Payne Inc. (HP, Financial)
HP too has an earnings growth figure nearly five times more than that required by Graham and a sales figure nearly six times more, has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and easily meets Graham's defensive criteria for assets, liabilities and debt as well. HP is selling for less than its Graham Number of $65.59, making it the second fully defensive Graham stock for 2013.
3. Cato Corp (CATO, Financial)
The third fully defensive Graham stock for 2013, CATO also has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and easily meets Graham's defensive criteria for sales, assets, liabilities, earnings growth and debt as well. It has a Graham Number of $25.00 and is currently selling just slightly lower at $24.42.
4. Fred's Inc. (FRED, Financial)
Fred's Inc. has a debt rating figure 40 times more than that required by Graham. It has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and easily meets Graham's defensive criteria for sales, assets, liabilities and earnings growth. At $14.23, Fred's Inc. is currently selling almost exactly at its Graham Number of $14.35.
5. Baker Hughes Inc. (BHI, Financial)
One of the defensive stocks first highlighted by Serenity last year, Baker Hughes Inc. is selling above its Graham Number today at $45.25. But with a sales figure of $20 Billion, BHI too is a model defensive Graham stock like HFC and will be eligible for defensive Graham investment as soon as it touches its Graham Number of $39.87. BHI also has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets all of Graham's defensive criteria for assets, liabilities, debt and earnings growth.
6. ALAMO GROUP Inc. (ALG, Financial)
ALG has a debt rating 25 times more than that required by Graham, has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets all of Graham's defensive criteria for assets, liabilities, sales and earnings growth. ALG is selling at $39.93 today and will be eligible for defensive Graham investment as soon as it touches its Graham Number of $34.89.
7. Intel Corp (INTC, Financial)
Again first highlighted by Serenity last year as a fully defensive stock, this colossus with $53 billion in sales exceeds Graham's size criteria by more than a 100 times, even accounting for inflation! It also has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets all of Graham's defensive criteria for assets, liabilities, debt and earnings growth. Selling today at $21.33, it will become eligible for defensive Graham investment at its Graham Number of $18.49.
8. Aarons Ord Shs (AAN, Financial)
With a debt figure 8 times more than that required by Graham and a sales figure 4 times more, AAN has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets Graham's defensive criteria for assets, liabilities and earnings growth as well. AAN is selling at $28.40 and will become eligible for defensive Graham investment at its Graham Number of $24.47.
9. Cubic Corp. (CUB, Financial)
CUB has a debt rating 60 times more than that required by Graham, has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets all of Graham's defensive criteria for assets, liabilities, sales and earnings growth. CUB is selling at $43.57 today and will be eligible for defensive Graham investment as soon as it touches its Graham Number of $37.43.
10. Regal Beloit Corp. (RBC, Financial)
The last stock in this list and the only other stock meeting all other defensive criteria and selling at a price within 80% of its Graham Number is the Regal Beloit Corp. With a sales figure nearly 6 times more than that required by Graham, RBC has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets Graham's defensive criteria for assets, liabilities, earnings growth and debt as well. RBC is selling at $83.64 today and will be eligible for fully defensive Graham investment if it touches its Graham Number of $69.93.
To Conclude:
Graham's principles have been recommended again and again over the years β by Buffett and by Graham's other students β in books and in speeches. Buffett even gave a famous speech in 1984, called "The Superinvestors of Graham-and-Doddsville," about why the most successful investors in the world were all students of Graham.
The latest list of approved Graham stocks changes everyday in accordance with price changes and financial releases. The Graham Number Screener can be used to filter the latest stocks trading close to their Graham Numbers and other defensive ratings.
The Comprehensive Graham Screener can be used to find approved defensive, enterprising and NCAV Graham stocks from 4,700 NYSE and Nasdaq stocks. By default, the screener lists all stocks that are selling for less than their respective Graham price, with defensive grade stocks listed first, followed by enterprising grade stocks and then NCAV grade stocks.
Disclaimer: The results were arrived at by automated quantitative analysis and were not verified manually. Verify the validity of the data used -- most importantly, for any recent stock splits -- before making an investment decision.
Buffett, who credits Graham with grounding him with a sound intellectual investment framework, describes Graham as the second most influential person in his life after his own father. In fact, Graham had such an overwhelming influence on his students that two of them, Buffett and Kahn, named their sons after him.
In the preface to Graham's book, The Intelligent Investor, Buffett calls it "by far the best book about investing ever written."
Graham's Defensive Grade Criteria:
Previously, in How to Build a Complete Benjamin Graham Portfolio, we had seen how to build portfolios of various grades of stocks recommended by Graham.
The highest grade of stocks recommended by Graham are called Defensive stocks. The criteria that Graham specified for identifying Defensive stocks are as follows:
Summarized from Chapter 14 of The Intelligent Investor - Stock Selection for the Defensive Investor:1. Not less than $100 million of annual sales.Graham's recommended price for defensive stocks can be calculated from criteria No. 6 and No. 7 as the square root of (22.5 x EPS x BVPS). This price is popularly known as the Graham number.
[Note: This works out to $500 million today based on the difference in CPI/Inflation from 1973]
2-A. Current assets should be at least twice current liabilities.
2-B. Long-term debt should not exceed the net current assets.
3. Some earnings for the common stock in each of the past 10 years.
4. Uninterrupted [dividend] payments for at least the past 20 years.
5. A minimum increase of at least one-third in per-share earnings in the past 10 years.
6. Current price should not be more than 15 times average earnings.
7. Current price should not be more than 1-1Γ’β2 times the book value.
As a rule of thumb, we suggest that the product of the multiplier times the ratio of price to book value should not exceed 22.5.
Defensive Graham Stocks for 2013:
Applying Graham's 16-step analysis to 4700 NYSE and NASDAQ stocks brings up the following list of stocks that meet all the Graham defensive criteria as well as have prices lesser than β or within 80% of β the Graham Number.
| Company | Annual Sales | Current Assets | Current Liabilities | Long Term Debt | EPS | Book value (Tangibles only) | Graham Number | Current Price |
| HollyFrontier Corp | $20,090.00 Million | $4,470.27 Million | $1,654.44 Million | $1,336.24 Million | $8.38 | $17.42 | $57.31 | $51.58 |
| Helmerich & Payne Inc | $3,150.00 Million | $895.23 Million | $381.16 Million | $195.00 Million | $5.27 | $36.28 | $65.59 | $60.57 |
| Cato Corp | $931.46 Million | $429.13 Million | $156.99 Million | $0.00 Million | $2.21 | $12.57 | $25.00 | $24.42 |
| Fred's Inc | $1,880.00 Million | $435.31 Million | $176.30 Million | $6.64 Million | $0.87 | $10.52 | $14.35 | $14.23 |
| Baker Hughes Inc | $20,930.00 Million | $10,990.00 Million | $4,127.00 Million | $3,837.00 Million | $2.90 | $24.36 | $39.87 | $45.25 |
| ALAMO GROUP INC | $603.59 Million | $276.12 Million | $75.69 Million | $8.62 Million | $2.68 | $20.19 | $34.89 | $39.93 |
| Intel Corp | $53,340.00 Million | $31,358.00 Million | $12,898.00 Million | $13,136.00 Million | $2.13 | $7.13 | $18.49 | $21.33 |
| Aarons Ord Shs | $2,220.00 Million | $1,810.00 Million | $676.80 Million | $141.53 Million | $2.25 | $11.83 | $24.47 | $28.40 |
| Cubic Corp | $1,380.00 Million | $712.73 Million | $282.64 Million | $6.94 Million | $3.44 | $18.10 | $37.43 | $43.57 |
| Regal Beloit Corp | $3,170.00 Million | $1,539.90 Million | $533.90 Million | $754.70 Million | $4.64 | $46.84 | $69.93 | $83.64 |
1. HollyFrontier Corp (HFC, Financial)
With a sales figure nearly 40 times more than that required by Graham and an earnings growth figure nearly 5 times more, HFC has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets Graham's defensive criteria for assets, liabilities and debt as well. HCF is also selling for less than its Graham Number of $57.31 making it the first fully defensive Graham stock for 2013.
2. Helmerich & Payne Inc. (HP, Financial)
HP too has an earnings growth figure nearly five times more than that required by Graham and a sales figure nearly six times more, has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and easily meets Graham's defensive criteria for assets, liabilities and debt as well. HP is selling for less than its Graham Number of $65.59, making it the second fully defensive Graham stock for 2013.
3. Cato Corp (CATO, Financial)
The third fully defensive Graham stock for 2013, CATO also has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and easily meets Graham's defensive criteria for sales, assets, liabilities, earnings growth and debt as well. It has a Graham Number of $25.00 and is currently selling just slightly lower at $24.42.
4. Fred's Inc. (FRED, Financial)
Fred's Inc. has a debt rating figure 40 times more than that required by Graham. It has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and easily meets Graham's defensive criteria for sales, assets, liabilities and earnings growth. At $14.23, Fred's Inc. is currently selling almost exactly at its Graham Number of $14.35.
5. Baker Hughes Inc. (BHI, Financial)
One of the defensive stocks first highlighted by Serenity last year, Baker Hughes Inc. is selling above its Graham Number today at $45.25. But with a sales figure of $20 Billion, BHI too is a model defensive Graham stock like HFC and will be eligible for defensive Graham investment as soon as it touches its Graham Number of $39.87. BHI also has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets all of Graham's defensive criteria for assets, liabilities, debt and earnings growth.
6. ALAMO GROUP Inc. (ALG, Financial)
ALG has a debt rating 25 times more than that required by Graham, has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets all of Graham's defensive criteria for assets, liabilities, sales and earnings growth. ALG is selling at $39.93 today and will be eligible for defensive Graham investment as soon as it touches its Graham Number of $34.89.
7. Intel Corp (INTC, Financial)
Again first highlighted by Serenity last year as a fully defensive stock, this colossus with $53 billion in sales exceeds Graham's size criteria by more than a 100 times, even accounting for inflation! It also has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets all of Graham's defensive criteria for assets, liabilities, debt and earnings growth. Selling today at $21.33, it will become eligible for defensive Graham investment at its Graham Number of $18.49.
8. Aarons Ord Shs (AAN, Financial)
With a debt figure 8 times more than that required by Graham and a sales figure 4 times more, AAN has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets Graham's defensive criteria for assets, liabilities and earnings growth as well. AAN is selling at $28.40 and will become eligible for defensive Graham investment at its Graham Number of $24.47.
9. Cubic Corp. (CUB, Financial)
CUB has a debt rating 60 times more than that required by Graham, has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets all of Graham's defensive criteria for assets, liabilities, sales and earnings growth. CUB is selling at $43.57 today and will be eligible for defensive Graham investment as soon as it touches its Graham Number of $37.43.
10. Regal Beloit Corp. (RBC, Financial)
The last stock in this list and the only other stock meeting all other defensive criteria and selling at a price within 80% of its Graham Number is the Regal Beloit Corp. With a sales figure nearly 6 times more than that required by Graham, RBC has positive earnings in each of the past 10 years, uninterrupted dividends for the last 20 years and meets Graham's defensive criteria for assets, liabilities, earnings growth and debt as well. RBC is selling at $83.64 today and will be eligible for fully defensive Graham investment if it touches its Graham Number of $69.93.
To Conclude:
Graham's principles have been recommended again and again over the years β by Buffett and by Graham's other students β in books and in speeches. Buffett even gave a famous speech in 1984, called "The Superinvestors of Graham-and-Doddsville," about why the most successful investors in the world were all students of Graham.
The latest list of approved Graham stocks changes everyday in accordance with price changes and financial releases. The Graham Number Screener can be used to filter the latest stocks trading close to their Graham Numbers and other defensive ratings.
The Comprehensive Graham Screener can be used to find approved defensive, enterprising and NCAV Graham stocks from 4,700 NYSE and Nasdaq stocks. By default, the screener lists all stocks that are selling for less than their respective Graham price, with defensive grade stocks listed first, followed by enterprising grade stocks and then NCAV grade stocks.
Disclaimer: The results were arrived at by automated quantitative analysis and were not verified manually. Verify the validity of the data used -- most importantly, for any recent stock splits -- before making an investment decision.
