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James Li
James Li
Articles (1398)  | Author's Website |

5 Ben Graham Lost Formula Stocks With High Financial Strength

Deep-value stocks to consider as coronavirus pandemic weighs on markets

As markets continue sliding on economic recovery slowdown fears, five Ben Graham Lost Formula stocks with high financial strength are Sabine Royalty Trust (NYSE:SBR), XBiotech Inc. (NASDAQ:XBIT), Catalyst Pharmaceuticals Inc. (NASDAQ:CPRX), Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) and Perdoceo Education Corp. (NASDAQ:PRDO) according to the All-in-One Screener, a Premium feature of GuruFocus.

Benjamin Graham, author of value investing books like "Security Analysis" and "The Intelligent Investor," developed in 1976 a refined formula that screened for companies with a price-earnings ratio of less than 10 and an equity-to-asset ratio of at least 0.5. A backtest of the strategy from 1926 to 1976 showed that such a strategy would have outperformed the Dow benchmark by approximately twice as much.

Market selloff continues as coronavirus pandemic weighs on economic recovery

On Wednesday, the Dow Jones Industrial Average closed at 26,521.07, down 942.12 points from Tuesday's close of 27,463.19 on the back of investor trepidation that the latest surge in coronavirus cases around the globe could halt economic recovery. The 30-stock index has sunk 1,814.50 points in the week to date, down from last Friday's close of 28,335.57.


The U.S. market selloff follows downswings in several European markets, with the German DAX 30, the French CAC 40 and the U.K. FTSE 100 indexes each declining between 2% and 4%. The DAX 30 closed near a five-month low of 11,560.51.

GuruFocus Filter Rank shows strong positive correlation between cash-to-debt and stock return

Regarding the financial strength of companies, Ben Graham required a minimum interest coverage of 5 with the companies that he invested in. If a company's interest coverage falls below 2, the company may be burdened with debt.


The cash-to-debt ratio gauges a company's financial strength by measuring its ability to pay down debt using just cash on hand. According to GuruFocus' "efficiency rank" feature, our research shows a strong positive correlation between a company's cash-to-debt ratio and stock return with efficiency rank 10. The research suggests that stocks with higher cash-to-debt ratios tend to have higher returns than do stocks with lower cash-to-debt ratios.

As such, investors can seek opportunities in Ben Graham Lost Formula stocks with high financial strength based on the cash-to-debt ratio.

Sabine Royalty Trust

Dallas-based Sabine Royalty Trust operates oil and gas properties in states around the Gulf of Mexico. GuruFocus ranks the company's financial strength 10 out of 10 on several positive investing signs, which include no long-term debt and a triple-digit Altman Z-score.


Chuck Royce (Trades, Portfolio)'s Royce & Associates has a holding in Sabine Royalty Trust.



XBiotech discovers and develops True Human monoclonal antibodies for treating various diseases. GuruFocus ranks the Austin, Texas-based clinical-stage biotech company's financial strength 10 out of 10 on several positive investing signs, which include no long-term debt and an equity-to-asset ratio that outperforms 98% of global competitors.


Catalyst Pharmaceuticals

Catalyst Pharmaceuticals develops and commercializes innovative therapies for people with chronic neuromuscular and neurological diseases. GuruFocus ranks the company's financial strength 8 out of 10 on several positive investing signs, which include a triple-digit cash-to-debt ratio and an equity-to-asset ratio that outperforms over 80% of global competitors.


Vanda Pharmaceuticals

Vanda Pharmaceuticals develops and commercializes therapies to address high unmet needs and improve the lives of patients. GuruFocus ranks the Washington, D.C.-based biotech company's financial strength 7 out of 10 on the back of equity-to-asset ratios outperforming over 80% of global competitors despite cash-to-debt ratios outperforming just over 63% of global peers.


Perdoceo Education

Perdoceo Education operates online universities that provide undergraduate, graduate and doctoral degree programs focusing on business, technology, management and social services. GuruFocus ranks the Illinois-based company's financial strength 9 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, a strong Altman Z-score of 5 and an equity-to-asset ratio that outperforms over 80% of global competitors.


Disclosure: The author has no positions in the stocks mentioned. The correlation research only gives a rough understanding of how the filters were correlated with stock returns over a specific period. Past performance does not indicate future performance and thus should be used with caution.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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