Following a stronger-than-expected jobs report for June, U.S. market indexes rose on Friday as investors anticipate the Federal Reserve will continue with its aggressive interest rate hikes as it attempts to combat inflation.
Extending the strong year for job growth, the Bureau of Labor Statistics reported nonfarm payrolls increased by 372,000 last month. This was higher than the 250,000 jobs economists were anticipating.
On Friday morning, the Dow Jones Industrial Average gained 0.3%, while the S&P 500 Index and Nasdaq Composite both rose about 0.2%.
Due to these developments, investors may be interested in companies that qualify for Benjamin Graham’s Lost Formula screen, a Premium GuruFocus feature.
Prior to his death in 1976, the renowned investor and author of "Security Analysis" and "The Intelligent Investor" developed 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. The formula got its name from that fact that he was unable to publish it before his passing; therefore, it was lost from public knowledge for a time.
A backtest of the strategy from 1926 to 1976 showed it would have outperformed the Dow benchmark by approximately twice as much.
The screener found new companies that met the criteria as of July 8 were Montrose Environmental Group Inc. (MEG, Financial), Editas Medicine Inc. (EDIT, Financial) and Replimune Group Inc. (REPL, Financial).
Montrose Environmental Group
Montrose Environmental Group (MEG, Financial) has a $1.05 billion market cap; its shares were trading around $35.67 on Friday with a price-book ratio of 3.16, a price-sales ratio of 1.72 and an equity-to-asset ratio of 0.59.
The Little Rock, Arkansas-based environmental solutions company provides air measurement and laboratory services as well as regulatory compliance, permitting, engineering and remediation. It serves landfills, electric utilities, water treatment facilities, municipalities and corporations around the world.
Since its initial public offering in July of 2020, the stock has climbed over 60%.
GuruFocus rated Montrose’s financial strength 6 out of 10. As a result of issuing new long-term debt over the past three years, the company has weak interest coverage. The Altman Z-Score of 2.45 also shows it is under some pressure due to losses in operating income. The return on invested capital is overshadowed by the weighted average cost of capital, meaning the company is struggling to create value while growing.
The company’s profitability scored a 2 out of 10 rating, weighed down by margins and returns on equity, assets and capital that underperform a majority of competitors. The moderate Piotroski F-Score of 6 out of 9, however, implies conditions are typical for a stable company.
Of the gurus invested in Montrose, Ron Baron (Trades, Portfolio) has the largest holding with 2.20% of its outstanding shares. Jim Simons (Trades, Portfolio)’ Renaissance Technologies also has a position in the stock.
Editas Medicine
Editas Medicine (EDIT, Financial) has a market cap of $1.04 billion; its shares were trading around $15.19 on Friday with a price-book ratio of 1.92, a price-sales ratio of 37.98 and an equity-to-asset ratio of 0.82.
The clinical-stage biotech company, which is headquartered in Cambridge, Massachusetts, develops treatments for rare diseases using CRISPR gene editing technology.
The GF Value Line suggests the stock is modestly undervalued currently based on its historical ratios, past financial performance and future earnings projections.
Editas’ financial strength was rated 7 out of 10 by GuruFocus. While assets are building up at a faster rate than revenue is growing, the Altman Z-Score of 3.25 indicates the company is in good standing. It also has a comfortable level of interest coverage.
Despite seeing operating margin expansion, the company’s profitability did not fare as well, scoring a 2 out of 10 rating on the back of negative returns that outperform over half of its industry peers. Editas also has a moderate Piotroski F-Score of 4 out of 9, but has recorded a decline in revenue per share over the past three years.
With 1.32% of its outstanding shares, Simons’ firm is the company’s largest guru shareholder. Other guru investors of Editas are Catherine Wood (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and John Hussman (Trades, Portfolio).
Replimune Group
Replimune Group (REPL, Financial) has a $1.01 billion market cap; its shares were trading around $20.68 on Friday with a price-book ratio of 2.27 and an equity-to-asset ratio of 0.89.
The Woburn, Massachusetts-based biotech company develops a novel class of tumor-directed oncolytic immunotherapies, which are designed to kill tumors locally, alter the tumor environment and create a strong patient-specific immune response.
According to the price chart, the stock has gained nearly 40% since its IPO in July of 2018.
GuruFocus rated Replimune’s financial strength 7 out of 10, driven by debt-related ratios that are outperforming versus other industry players.
The company’s profitability did not fare as well with a 1 out of 10 rating. While Replimune’s returns are negative, they outperform over half of its competitors. It also has a low Piotroski F-Score of 3, indicating operations are in poor shape.
Steven Cohen (Trades, Portfolio) is the company’s largest guru shareholder with a 1.81% position. Simons’ firm and Jones also own shares of Replimune.
