In August 2013, GuruFocus started tracking how many company stocks made each of the value screeners across various regions. Three years later, GuruFocus expanded its content to over 100,000 stocks across eight regions.
Instead of analyzing the stocks individually, investors can screen for companies that meet certain criteria by implementing the value screeners. Additionally, these value screeners can predict which regions have undervalued stock markets.
An introduction to the value screeners
The value strategies come in an eclectic variety of styles. Each strategy focuses on a few financial metrics, and the corresponding screener lists the stocks that meet all the criteria. Even though the strategies screen for stocks using different filters, most strategies have outperformed the Standard & Poor’s 500 index, as implied by the model portfolios.
Companies whose price-to-net-net working capital is less than 0.67 typically appear on the Ben Graham Net-Net Working Capital Screener. Additionally, Graham’s stock picks usually have positive trailing 12-month operating cash flows and a high cash-to-debt ratio. A previous article further detailed Graham’s investing strategy and the Graham number.
As its name suggests, the Undervalued Predictable Screener lists the companies that have a predictability rank of at least four stars and are currently trading below their intrinsic value based on discounted cash flow models. Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio), the co-managers of Berkshire Hathaway Inc. (BRK.A, BRK.B), also target undervalued predictable companies. Unlike the Undervalued Predictable Screener, the Buffett-Munger Screener lists stocks that are undervalued based on their PEPG, the company’s price-earnings ratio divided by the five-year EBITDA growth rate. A previous article further discussed Buffett’s investment strategy.
As mentioned in an earlier article, Joel Greenblatt (Trades, Portfolio) prefers companies with increasing earnings yield and returns on capital. Although the magic formula provides good investing ideas, Greenblatt’s strategy is not as useful as other value strategies due to the significantly high number of stocks meeting Greenblatt’s criteria. The majority of stocks that made the Greenblatt Magic Formula Screener as of August usually made other, more selective screeners as well.
Three of the screeners look for stocks that have historical low valuations: the Historical Low Price-to-Sales Screener, the Historical Low Price-to-Book Screener and the Peter Lynch Growth with Low Valuation Screener. The former two screeners, as well as Graham’s, Undervalued Predictable, Buffett-Munger and Greenblatt, can be accessed under the “Screeners” tab. The Peter Lynch Growth Screener and the Walter Schloss Screener are located within the All-in-One Guru Screener.
As the names suggest, the Historical Low P/S Screener and the Historical Low P/B Screener lists the stocks that have valuation ratios near historical lows. Companies that make these lists are also likely to make other screeners as well due to undervaluation. An earlier article discusses Kohl’s Corp. (KSS, Financial), a strong retail company that recently had P/S ratios near 10-year lows. As of Aug. 2, Kohl’s made at least three value screeners: in addition to the two historical low valuation screeners, the department store company also made the Peter Lynch Growth screener.
The author of "Beating the Street"Â and "One Up on Wall Street," Lynch implemented multiple screeners to find good stocks in which to invest. An earlier article discussed Lynch’s fast-growth screener and his best airline stocks. Lynch also introduced a growth with low valuation screener with the following filters:
- The company has at least a two-star predictability rank.
- The company’s trailing 12-month price-earnings ratio is less than 14.
- The company’s 10-year revenue growth rate is at least 6%.
GuruFocus lists additional Peter Lynch stocks in the Peter Lynch Screen.
While he does not value stocks using the net-net working capital, Schloss also targets cheap stocks. The Walter Schloss Screener implements the following filters:
- The company has an Altman Z-score in safe zones (i.e., greater than 2.99).
- The company has interest coverage of at least 10.
- The company’s price-to-tangible book ratio is less than 1.0.
- The company’s current stock price is less than 25% above its three-year low.
An earlier article discussed the best sectors in which to invest based on Altman Z-scores.
Value screeners shed light on global market valuations
With the value screeners, we can observe some trends across the regions. As mentioned earlier, Graham’s screener and Schloss’ screener both list stocks trading at bargain prices. As of Aug. 2, over 400 Asian stocks made these two screeners, suggesting that the Asian stock market is undervalued. Two ratios, the total market cap / gross domestic product ratio and the Shiller P/E ratio, indicate the relative value of a company’s stock market.
Buffett once claimed that the TMC / GDP ratio is one of the best indicators of where market valuations currently stand. Based on global market valuations, several Asian markets, including the Chinese and Russian stock markets, are significantly undervalued. Among the emerging markets, the Chinese and Russian markets are likely to have an average annualized return of over 30% during the next eight years. On the other hand, the U.S. stock market is likely to average just 0.2%.
Conclusions and further comments
Beginning this month, we will report the total number of stocks that made each of the value screeners across each of the eight regions. Additionally, we will highlight some stocks that made multiple screeners and discuss which sectors offer good investments based on these screeners.
The value screeners, including the All-in-One Guru Screener provides stock insights for Premium members only. Additionally, Premium members also receive free monthly newsletters that highlight a few stocks in which famous investors might invest. We encourage everyone to start a free seven-day trial and explore these value screeners.
Disclosure: The author has no position in the stocks mentioned in the article.
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