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James Li
James Li
Articles (327)  | Author's Website |

Value Screeners Identify Good Opportunities for 2017

A deeper understanding of value screeners and how to implement them in the All-in-One Screener

As discussed in a previous article, value screeners can explain global market valuations and the predictability of companies. GuruFocus provides several value screeners, ranging from Ben Graham’s Net-Net screener to the Buffett-Munger Screener. However, one value screener allows you to generate customized screeners and backtest the model portfolio for the past three to 10 years: the All-in-One Guru Screener.

As the name suggests, the All-in-One Guru Screener allows you to screen for a list of company stocks from over 150 predefined filters. The filters are conveniently organized into several tabs: fundamental, valuation ratio, profitability, growth, valuation rank, price, dividends, gurus and insiders. This article will discuss the predefined value screeners and how you can implement them using the All-in-One Guru Screener. Additionally, we will discuss which companies made the value screeners as of Jan. 5, 2017.

Screening for cheap companies: Ben Graham and Walter Schloss

Ben Graham, known as the “Father of Value Investing,” looks for cheap companies based on the price to net-net working capital ratio. The intelligent investor also requires that the companies have no meaningful debt and positive operating cash flows over the past 12 months, although the value screener also lists companies with negative cash flows. To screen for Ben Graham Net-Net companies through the All-in-One Screener, simply activate the following two filters:

  • Price/NNWC less than 0.66. (located underneath the Valuation Ratio tab, middle column)
  • Interest Coverage greater than 5. (located underneath the Fundamental tab, second column from left, sixth item from top)

Two biotech companies, Adverum Biotechnologies Inc. (NASDAQ:ADVM) and ProNAi Therapeutics Inc. (DNAI) made the Net-Net Screener as of Jan. 5.

Although Walter Schloss also searches for cheap stocks, his screener contains more filters than Ben Graham’s does. As discussed in a research article, the Walter Schloss Cheap Stocks Screen includes the following four filters:

  • Interest coverage greater than 10
  • Altman Z-score greater than 2.99
  • Price/Tangible Book ratio less than 1 (located underneath the Valuation Ratio tab, bottom row, second item from the right)
  • % Above 3-year low less than 25% (located underneath the Price tab, bottom half, top item in second column)

Figure 1 lists the number of stocks making the two “cheap stock” screeners across the regions as of Jan. 5. As observed in Figure 1, over 600 Asian companies made the Net-Net screener, suggesting that the Asian stock market is undervalued compared to other stock markets. The ratio of total market over gross domestic product for China is 50%, suggesting the China stock market is significantly undervalued. Figure 2 summarizes the ratio of total market over GDP of global companies.

Figure 1


Figure 2

Screening for undervalued predictable companies

As the name suggests, the Undervalued Predictable Screener lists the companies that have high business predictability and trade below their intrinsic value, which can be earnings based or free cash flow based. You can screen for undervalued predictable companies by selecting the following filters:

  • Predictability 4 Stars or higher (located underneath the Fundamental tab, first column from left, fifth up from “Next Earnings Date”)
  • Then, either select “Price/DCF Earnings Based” or “Price/DCF FCF Based” from the Valuation Ratio tab, second column from right, and set it less than 1.

Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio), the co-managers of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), further limits the list of undervalued predictable companies. To make Buffett’s list of good companies, a company must have the following characteristics:

  • Predictability 4 Stars or higher
  • Durable competitive advantages. A company has durable competitive advantage if its gross margin is at least 40%. You can find this filter under the Profitability tab, top-left corner.
  • Incur little debt when growing its business. We will “borrow” Ben Graham’s criterion of interest coverage of at least 5% here. Additionally, we will also require a 5-year EBITDA growth rate and a 10-year EBITDA growth rate of at least 10%.
  • Fair valued or undervalued based on the price-earnings to growth ratio. Set the PEG, located in the middle column near the bottom, to less than 2.

Several retail companies, like Tractor Supply Co. (NASDAQ:TSCO), Hibbett Sports Inc. (NASDAQ:HIBB) and Winmark Corp. (NASDAQ:WINA) made both the undervalued predictable list and Buffett’s list of good companies as of Jan. 5. Figure 3 summarizes the value screener record for undervalued predictable and Buffett-Munger companies.

Figure 3

Screening for companies with historical low valuations

Two value screeners, the historical low price-to-sales screener and the historical low price-to-book screener, list the predictable companies that have valuation ratios near a 10-year low. Such companies likely also appear on the undervalued predictable screener and Buffett-Munger screeners, e.g. Wipro Ltd. (NYSE:WIT). To screen for these companies, select the Predictability filter to 4 Stars or higher, and then one of the following:

  • “% Above Historical Low P/S” less than 30%
  • “% Above Historical Low P/B” less than 30%

You can find both of these filters under the “Price” tab toward the bottom-left corner. P/B is the first item in the second-to-last row while P/S is the second item.

Figure 4 lists the number of companies with historical low P/S and low P/B ratios across global regions.

Figure 4

While the Peter Lynch Growth with Lower Valuation Screener also lists companies that have low valuations, the Peter Lynch screener does not look at companies with historical low price-earnings ratios. Instead, the screener lists the companies that meet the following criteria:

Additionally, the Peter Lynch Screener limits the industries to defensive and sensitive industries like airlines and business services. Such companies include Allegiant Travel Co. (NASDAQ:ALGT) and DST Systems Inc. (NYSE:DST). Figure 5 lists the number of Peter Lynch Growth companies across the global regions.

Figure 5

See also

GuruFocus offers several model portfolios that have generally outperformed the Standard & Poor’s 500 index exchange-traded fund during the past nine years, including the Most Broadly Held Portfolio, the Most Weighted Portfolio and the Top 25 Buffett-Munger Portfolio. Premium members can find good defensive-investing opportunities through the corresponding value screeners: the aggregated portfolio of gurus and the Buffett-Munger screener. The former lists the companies with the highest combined weighting from the personalized list of gurus while the latter lists the companies that meet Buffett and Charlie Munger (Trades, Portfolio)’s four-criterion investing approach: predictability rank of at least four stars, durable competitive advantage, little or no debt and undervalued based on the price-earnings to growth ratio.

The premium membership includes access to over 150 gurus’ portfolios, including Stanley Druckenmiller (Trades, Portfolio) and Sarah Ketterer (Trades, Portfolio), as well as real-time picks, guru trades where the guru owns more than 5% of the total shares outstanding and must report the Securities and Exchange Commission within 10 business days of the trade. Premium Plus members get access to portfolio data on over 4,000 institutions that file 13F’s, up to 10 years of backtesting in the All-in-One Guru Screener, and the Manual of Stocks for all companies subscribed.

Disclosure: The author has no position in the stocks mentioned.

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About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website

Rating: 4.2/5 (6 votes)



Bertrand premium member - 10 months ago

Very good article, thank you

Alochemes premium member - 10 months ago

Love the article, I have one comment though regarding the Biotech companies trading at
Price< 0.66(NNWC).

The metric itself is a great tool to find companies that are cheap by Graham's standards, however Biotech companies are a tad different. Due to the high cash burn rate involved in clinical test, etc. I believe it would be helpful to determine an average period burn rate based on historical factors. These companies are very cash intensive and typically, unless a trial has passed to the next stage, you will not see a consist reversion to the mean (NNWC) with cheap companies in this industry. You will find many biotechs trading below liquidation value because the value-add is in the drug coming to the market, until then it burns money and will typically be a "cheap" company. However the risk profile of a make or break is a fairly speculative play, based on these factors, I believe Graham would stay away. However, I didn't know the man so I don't know!


Andrew Lochemes

Newhigh premium member - 8 months ago

One of the best and most useful articles on GF

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