I frequently write about companies found on the Undervalued Predictable (UP) and Buffett-Munger screeners here at GuruFocus. In the process, many fine companies have emerged but often share a problem: long-term debt.
A more patient writer or investor might go through the screener lists one company at a time, but this could mean dozens and dozens of stocks, and I’m not sure I could see any differences by the time I finished them all.
Not that a stock-by-stock, manual search is hard to do. Simply click on the stock symbol in the left column of the screener list and then look at the top, left corner of Financial Strength screen — the cash-to-debt ratio. If the company has debt, it will display a number, as well as a yellow, red (or perhaps even a green) icon. A debt-free company will have the words "no debt" and at least one green icon. Here’s how it looks for Westwood Holdings Group (WHG, Financial):
Creating a new screen
Cash-to-debt ratio
After bringing up the All-In-One Screener, I selected the Fundamental tab and located the Cash to Debt Ratio input cells.
Note the splash of yellow in the bottom, right corner. That’s the second cell for entering values for this ratio. Clicking on the \/ button gives us a drop-down menu, and from it we select the No Debt Only option. In this case we need not enter a value in the first cell.
The universe of eligible stocks now drops from many thousands to 1,827. But, of course, we have more criteria in mind.
Predictability
While still at the Fundamental tab, we enter another of our criteria: Predictability.
Part way down the left column, we see a Predictability label and two value-entry cells, one for the minimum number of stars we’re willing to accept and another for the maximum.
To stay with high-predictability (predictability of Earnings Before Interest, Taxes, Depreciation, and Amortization — EBITDA), I enter 4 in the minimum cell and 5 in the maximum cell, as shown here:
Valuation
We now have a list of 47 stocks with no debt and high predictability ratings, but we would also like a bargain, an undervalued name if possible.
Click on the Valuation tab next, and we see an extensive list of the valuation criteria.
In this exercise, we’ll select the PEG ratio, the main valuation metric in the Buffett-Munger screener. PEG comes to us from Peter Lynch, the former mutual fund superstar. He created it by dividing a company’s price-earnings (P/E) by its average five-year EBITDA growth rate.
While P/E quantifies how much we pay for one-year’s worth of earnings, PEG gives us a perspective on how much we are paying for both earnings and earnings growth. PEG is also known as PEPG.
Back at the All-In-One screener, we select 1.5 from the dropdown menu.
Lynch said that stocks with a PEG below 1.0 are undervalued, those between 1.0 and 2.0 are fair valued, and those above 2.0 are overvalued. So in this screen, we’re saying anything that is below the halfway point in the fair-valued range.
Gurus
I also decided I would like a stock that is also owned by guru Jim Simons (Trades, Portfolio), whose name pops up quite frequently on the Undervalued Predictable screener list. Of course, Simons’ funds own more than 3,000 stocks, so his picks show up just about everywhere.
To add his ownership, I clicked on the Gurus tab, which looks like this:
And, I selected the letter J from the list beside the names of the gurus (the list sorts by first names, not surnames).
Scrolling down the page, we see the list now has been screened down to five names, a manageable number when it comes to short listing. You can sort the list, according to any of the headers, including the PEG ratio.
Save the screen
One more thing before we go off to study the stocks on the list: Save it for future use.
At the bottom of the screening area, we see Save Current Screen, as well as places to enter a name for the screen and a description. I named this one No-Debt Predictable and described it as No debt, minimum 4-Star, maximum 1.5 PEG, Jim Simons (Trades, Portfolio) – and clicked the Save button.
If you do not want others to see your screen, simply click the box next to the word Private, and you will be the only person who can access this screen.
Conclusion
This quick and easy exercise has delivered a list of stocks that meet some very specific criteria:
- No debt.
- A minimum predictability rating of 4-Stars.
- A PEG ratio at or below 1.0.
- Also owned by Simons.
You might set the criteria differently or use altogether different criteria since your needs and risk tolerance likely differ from mine.
With the All-In-One screener, you can personalize to your heart’s content, potentially creating literally millions of different outcomes.
In this case, the screener did its job. In just a few minutes I was able to create a manageable list of stocks that fit all four criteria I specified.
In future articles, I'll profile at least one of the stocks that emerged from this screening.
Disclosure: I do not own any of the stocks listed in this article, nor do I expect to buy any of them in the foreseeable future.
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