U.S. market indexes fell on Thursday morning after the Federal Reserve delivered yet another interest rate hike and indicated that a change in monetary policy is not likely to occur anytime soon.
The Dow Jones Industrial Average declined 194 points, or 0.6%, while the S&P 500 Index sank 1% and the Nasdaq Composite retreated 1.3%.
Further, the yield on the two-year Treasury note reached its highest level since July 2007, while the benchmark 10-year yield climbed 13 basis points to 4.19%.
Among individual sectors, tech stocks, which are down nearly 42% year to date, are also trading lower due to a number of disappointing earnings reports.
As a result of these developments, investors may be interested in potential opportunities in tech companies that qualify for Benjamin Graham’s Lost Formula screen, a Premium GuruFocus feature.
Prior to his death in 1976, the legendary 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 the fact he was unable to publish it before his passing; therefore, it was lost from public knowledge for a time. Since Graham also prioritized a minimum interest coverage of 5 with the companies he invested in, that element was included in the criteria as well.
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 tech companies that met the criteria as of Nov. 3 included Intel Corp. (INTC, Financial), Micron Technology Inc. (MU, Financial), Amkor Technology Inc. (AMKR, Financial), MKS Instruments Inc. (MKSI, Financial) and Vishay Intertechnology Inc. (VSH, Financial).
Intel
Intel (INTC, Financial) has a $113.46 billion market cap; its shares were trading around $27.76 on Thursday with a price-earnings ratio of 8.46, a price-book ratio of 1.14, a price-sales ratio of 1.62 and an equity-to-asset ratio of 0.57.
The Santa Clara, California-based company manufactures semiconductor chips for use in personal computers and data centers.
The GF Value Line suggests the stock is significantly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings estimates.
The GF Score of 84 out of 100 implies the company is expected to have good outperformance potential, having received high marks for everything except its momentum rank.
GuruFocus rated Intel’s financial strength 7 out of 10 as it is being supported by a comfortable level of interest coverage. The Altman Z-Score of 2.29, however, cautions it is under some pressure. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s profitability scored a 9 out of 10 rating as a result of operating margin expansion and strong returns on equity, assets and capital that are outperforming versus competitors. It also has a moderate Piotroski F-Score of 4 out of 9, meaning conditions are typical of a stable company. Intel’s predictability rank of two out of five stars is on watch as a result of a decline in revenue per share growth over the past year. According to GuruFocus research, companies with this rank return an average of 6% annually over a 10-year period.
Of the gurus invested in Intel, PRIMECAP Management (Trades, Portfolio) has the largest stake with 1.18% of its outstanding shares. Chris Davis (Trades, Portfolio), Al Gore (Trades, Portfolio)’s Generation Investment, Seth Klarman (Trades, Portfolio), Michael Price (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and Tweedy Browne (Trades, Portfolio) also have significant positions.
Micron Technology
Micron Technology (MU, Financial) has a market cap of $58.31 billion; its shares were trading around $53.49 on Thursday with a price-earnings ratio of 6.94, a price-book ratio of 1.18, a price-sales ratio of 1.99 and an equity-to-asset ratio of 0.75.
The semiconductor company, which is headquartered in Boise, Idaho, focuses on manufacturing DRAM chips as well as NAND flash memory for PCs, data centers, smartphones, game consoles, cars and other devices.
According to the GF Value Line, the stock is significantly undervalued currently.
The GF Score of 91 means the company has high outperformance potential, driven by high marks for all five criteria.
Micron’s financial strength and profitability were both rated 8 out of 10 by GuruFocus. In addition to sufficient interest coverage, the high Altman Z-Score of 4.34 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC also eclipses the WACC, so value is being created.
Although the operating margin is in decline, the company has strong returns that outperform a majority of industry peers. It also has a high Piotroski F-Score of 8, indicating that conditions are healthy, while consistent earnings and revenue growth contributed to a 2.5-star predictability rank. GuruFocus found companies with this rank return, on average, 7.3% annually.
With a 3.66% stake, PRIMECAP is Micron’s largest guru shareholder. Other top guru investors include Li Lu (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Klarman, Hotchkis & Wiley, Mohnish Pabrai (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio) and the Parnassus Endeavor Fund (Trades, Portfolio).
Amkor Technology
Amkor Technology (AMKR, Financial) has a $4.95 billion market cap; its shares were trading around $20.22 on Thursday with a price-earnings ratio of 6.09, a price-book ratio of 1.42, a price-sales ratio of 0.72 and an equity-to-asset ratio of 0.52.
The Tempe, Arizona-based company provides outsourced semiconductor packaging, design and test services.
Based on the GF Value Line, the stock appears to be fairly valued currently.
The company also has high outperformance potential on the back of a GF Score of 94. It had high ratings for all the categories except GF Value.
GuruFocus rated Amkor’s financial strength 7 out of 10. In addition to adequate interest coverage, the Altman Z-Score of 3.06 indicates the company is in good standing. Further, the ROIC exceeds the WACC, so value creation is occurring.
The company’s profitability fared even better, scoring a 9 out of 10 rating as a result of operating margin expansion, strong returns and a high Piotroski F-Score of 7. Due to steady earnings and revenue growth, Amkor also has a four-star predictability rank. GuruFocus data shows companies with this rank return an average of 9.8% annually.
Chuck Royce (Trades, Portfolio) is Amkor’s largest guru shareholder with 0.40% of its outstanding shares. First Eagle Investment (Trades, Portfolio), John Hussman (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Grantham, Joel Greenblatt (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Baillie Gifford (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss also own the stock.
MKS Instruments
MKS Instruments (MKSI, Financial) has a market cap of $4.58 billion; its shares were trading around $68.89 on Thursday with a price-earnings ratio of 6.92, a price-book ratio of 1.23, a price-sales ratio of 1.28 and an equity-to-asset ratio of 0.66.
The hardware company headquartered in Andover, Massachusetts provides instruments, components and systems required in manufacturing products like flat panel displays, medical devices and electronic materials.
The GF Value Line suggests the stock is significantly undervalued currently.
The GF Score of 96 indicates the company has high outperformance potential. It raked in high points across the board.
MKS Instruments’ financial strength was rated 8 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the high Altman Z-Score of 4.23 means the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC also surpasses the WACC, meaning value is being created.
The company’s profitability fared a bit better with a 9 out of 10 rating, driven by operating margin expansion, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 5. Due to consistent earnings and revenue growth, MKS Instruments also has a four-star predictability rank.
Of the gurus invested in the stock, Royce has the largest position with 1.21% of its outstanding shares. Fisher, Simons’ firm, Jones, Greenblatt, Keeley-Teton Advisors, LLC (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and First Eagle also have positions in MKS Instruments.
Vishay Intertechnology
Vishay Intertechnology (VSH, Financial) has a $2.87 billion market cap; its shares were trading around $20.04 on Thursday with a price-earnings ratio of 8.35, a price-book ratio of 1.56, a price-sales ratio of 0.86 and an equity-to-asset ratio of 0.52.
The Malvern, Pennsylvania-based company manufactures discrete semiconductors and passive electronic components.
According to the GF Value Line, the stock is modestly undervalued currently.
Further, the company has good outperformance potential based on its GF Score of 88. While it received mostly high ranks for several of the criteria, its GF Value got middling marks.
Vishay’s financial strength and profitability were both rated 8 out of 10 by GuruFocus. In addition to adequate interest coverage, the Altman Z-Score of 3.13 indicates the company is in good standing. Further, value is being created since the ROIC outshines the WACC.
The company is also supported by an expanding operating margin, strong returns that are outperforming industry peers and a high Piotroski F-Score of 8. Vishay also has a one-star predictability rank. GuruFocus found companies with this rank return an average of 1.1% annually.
With a 2.53% stake, Fisher is Vishay’s largest guru shareholder. Royce, Hotchkis & Wiley, Steven Scruggs (Trades, Portfolio), Simons’ firm, Robert Olstein (Trades, Portfolio), Jones, Greenblatt and Barrow, Hanley, Mewhinney & Strauss also own the stock.
Additional options
Other stocks that qualified for the screener included Photronics Inc. (PLAB, Financial), Snowflake Inc. (SNOW, Financial), Qualtrics International Inc. (XM, Financial), GitLab Inc. (GTLB, Financial) and UiPath Inc. (PATH, Financial).
