Searching for value stocks based on reading and studying Benjamin Graham’s classics on the subject, an investor would be searching for specific criteria before doing further diligence on an investing opportunity. Is it trading near or below book value? Is the price-earnings ratio lower than peers and/or its own historical numbers? Is there a steady record of earnings? Does it pay a dividend? Is long-term debt less than equity?
There’s much more to investing, of course, and the markets have changed since Graham's time, but those who pay attention to these basics of value investing may still find decent long-term opportunities.
One stock that appears to fit the value profile right now is Safe Bulkers (SB, Financial), a shipping stock benefitting from a cyclical upswing in the shipping industry. It can be risky investing in cyclical stocks using a value strategy, but given the supply chain congestion dramatically increasing shipping costs, I believe the opportunity for shipping stocks will remain for a while yet.
The New York Stock Exchange-listed equity is trading with a meager price-earnings ratio of 3.25 and a forward price-earnings ratio of just 4.12. Safe Bulkers can be purchased right now at an 18% discount from its book value. Value is also suggested by its price-sales ratio of 1.67 and its price-to-free-cash-flow ratio of only 2.54.
Earnings in the most recent full fiscal year were extraordinary with an increase of 683.10%. The past five-year earnings per share gain is 30.20%. Wall Street expects a drop off from these types of gains in the coming year. The company’s long-term debt is less than shareholder equity. Safe Bulkers' dividend payment comes to a 4.39% yield.
The stock traded as low as $3 per share during the January of 2021 and now goes for $4.56 per share, a remarkable upward move in a very short period of time.
The GuruFocus summary of its financials shows two good signs, one medium warning sign and two severe warning signs:
There’s plenty of competition in the shipping industry including from such publicly traded companies as Danaos (DAC, Financial), Eagle Bulk Shipping (EGLE, Financial) and Grindrod Shipping (GRIN, Financial), among others. This isn't of too much importance, since shipping companies have no real competitive advantages over each other anyway. Gains from these stocks are mostly due to cyclical swings.
