Starting in August, GuruFocus will track the number of stocks that can pass each value screener across different regions. This will give some idea of the general market valuations. The August stock lists can be seen here.
GuruFocus provides value screeners for our Premium members to generate ideas with proven value strategies. GuruFocus All-In-One Screener also allows subscribers to create their own value screeners with more than 150 filters. Here we want to see how many companies pass different stock screeners in different region and which companies can pass most of the screeners.
The following are the number of companies that pass the screeners:
Note: the Peter Lynch Screener and Walter Schloss Screener can be found through the All-in-One Guru Screener. The complete stock list can be seen by clicking the link.
We can clearly see that Asian markets are where we can find most Ben Graham net-nets and Walter Schloss stocks. This is not surprising as emerging markets lost their favor. Chinese stock markets are traded at five-year lows.
In the most recent memo by the legendary Howard Marks, he discussed “The Role of Confidence” in investment decision making. He pointed out that a few years ago investors were wildly optimistic about emerging markets. But now these days the same group of investors is pessimistic about emerging markets. Our screeners indicate that a lot more bargains can be found in Asia.
The companies that pass the Undervalued Predictable screener doubled in Europe. This is probably because the European market was down in August which provides more opportunities in Europe.
The following are the U.S. stocks that passed at least three screeners as of Sept. 3, 2013:
|Table 1: Stocks Pass At Least Three Screeners - US|
|Table 2: Stocks Passed At Least Two Screeners - Canada|
|Table 3: Stocks Passed At Least Two Screeners - UK/Ireland|
|Table 4: Stocks Passed At Least Three Screeners - Europe|
|Table 5: Stocks Passed At Least Two Screeners - Aisa|
|Table 6: Stocks Passed At Least Two Screeners - Oceania|
The following is a brief summary of different screeners.
Benjamin Graham Net Current Asset Value Screener
Benjamin Graham defined a net-net value as cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) - total liabilities. He looked for companies whose market values were less than two-thirds of that net-net value. The rules of the screener are as follows:
- The stock prices are less than the net current asset value of the companies – Benjamin Graham.
- During the past 12 months, the companies generated positive operating cash flow.
- The company has no meaningful debt compared to its cash position.
- According to Benjamin Graham, some of these companies may well go under as economic conditions worsen. It is important to hold a diversified group of them.
GuruFocus applied the discounted cash flow and discounted earnings to the top-ranked predictable companies and calculated the intrinsic values of the these companies. These are the companies that appeared to be undervalued. The intrinsic value of the companies is calculated with Future Earnings at Growth Stage + Terminal Value.
Buffett-Munger Screener - Good Companies at Fair or Undervalued Prices
The Buffett-Munger Screener can be used to find companies with high-quality business at undervalued or fair-valued prices:
- Companies that have high Predictability Rank, that is, companies that can consistently grow their revenue and earnings.
- Companies that have competitive advantages. They can maintain or even expand their profit margin while growing their business
- Companies that incur little debt while growing their business.
- Companies that are fair valued or under-valued. We use PEPG as the indicator. PEPG is the P/E ratio divided by the average growth rate of EBITDA over the past five years.
These companies have been very predictable in their business operations. They are sold at close to historical low price/sales ratios. Their sales and earnings have consistently grown for at least the past decade. However, the price/sales (P/S) ratio of each of these companies is less than 30% above its historical low.
Companies at Historical Low Price/Book Ratios
These are the predictable companies that are sold at close to historical low price/book (P/B) ratios. Their sales and earnings have consistently grown for at least the past decade. However, the price/book (P/B) ratios of these companies are less than 30% above their historical lows.
Peter Lynch Screener
- Companies that have Predictability Rank of at least 2 stars.
- Companies that have P/E ratio of at most 14.
- Companies that have 10 years revenue growth rate of at least 6%.
- Companies that have Altman Z-Score of at least 2.99. Z-Score model is an accurate forecaster of failure up to two years prior to distress. It can be considered the assessment of the distress of industrial corporations. Altman Z-Score is calculated with this formula: Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5 where
X2 = retained earnings/total assets,
X3 = earnings before interest and taxes/total assets,
X4 = market value equity/book value of total liabilities,
X5 = sales/total assets.
- Companies that have interest coverage of at least 10. It is a ratio that measures the burden of the debt a company carries and how easily the company can pay off its debt. It is calculated by dividing a company’s Operating Income (EBIT) by its Interest Expense.
- Companies that have price to tangible book of at most 1.0.
- Companies that are max 25% above a three-year low.
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