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Holly LaFon
Holly LaFon
Articles (9293)  | Author's Website |

5 Stocks Join Ben Graham Net-Net Screener in Market Decline

Stocks becoming more attractive buys

December 07, 2018 | About:

The market declined 2.43% Friday afternoon, placing it at a 0.55% gain for the year. But as market turmoil strikes, value investors can rejoice because more bargain stocks appear. That was the case this week, when five new stocks joined the Ben Graham net-net working capital screener, after years when discounted stocks were hard to come by.

A valuation concept created by the founder of value investing, Ben Graham, a net-net working capital stock is one that is priced below its cash and short term investments, plus conservative estimates of accounts receivable and total inventory, minus its total liabilities, while neglecting to calculate other assets such as land, equipment and intangible assets, and focusing on only liquid and tangible asset value. He called this net-net working capital. Mathematically, his formula looks as follows:

Net-net working capital (NNWC) = cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) - total liabilities

Graham developed the method to buy stocks for less than their liquidation value, and he usually held many. In his seminal book, “The Intelligent Investor,” he wrote:

“The idea here was to acquire as many issues as possible at a cost for each of less than their book value in terms of net-current-assets alone – i.e., giving no value to the plant account and other assets. Our purchases were made typically at two-thirds or less of such stripped-down asset value. In most years we carried a wide diversification here – at least 100 different issues.”

Stocks that meet these criteria tend to perform well. One study found that over one 13-year period, they returned 29.4% on average, compared to a 11.5% rise in the S&P 500.

Typically, they are hard to find in perpetually bull markets. But more are appearing as markets sink. GuruFocus makes finding them simple through its Ben Graham Net-Net Working Capital Screener, a premium feature. The screener also finds stocks that are between 100% to 300% of net-net working capital to help generate more ideas, and the stocks from Friday fell into that range. 

The stocks that newly appeared on the list Friday were: AVX Corp. (NYSE:AVX), Bovie Medical Corp. (BVX), U.S. Gold Corp. (NASDAQ:USAU), American Public Education Inc. (NASDAQ:APEI) and REX American Resources Corp. (NYSE:REX).

AVX Corp. (NYSE:AVX)

AVX Corp. is a manufacturer and supplier of electric components such as capacitors and inductors, serving an array of industries including auto, medical, military and industrial. Several investors tracked by GuruFocus also nabbed the $2.58 billion market cap company in the third quarter. Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) each started stakes.

AVX Corp. shares declined 3.04% Friday, and 10.09% for the year to date, to $15.30 per share. Its net-net working capital is $5.20.

AVX Corp. has price-earnings ratio of 38.23 and price-sales ratio of 1.46. The trailing 12-month dividend yield is 3.02%. The forward dividend yield of AVX Corp. is 2.92%.

Bovie Medical Corp. (BVX)

Bovie Medical Corp. makes medical devices used in electrosurgery with a portfolio of 20,0000 instruments. The $249.03 million market cap company is found in the portfolios of three investors GuruFocus tracks: Chuck Royce (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Jim Simons (Trades, Portfolio).

Its shares dived 5.73% Friday, but has climbed 190% year to date to $7.07 per share. Its NNWC is $2.39.

Bovie Medical has a price-earnings ratio of 3.69 and price-sales ratio of 4.05.

U.S. Gold Corp. (NASDAQ:USAU)

U.S. Gold Corp. is a gold exploration and development company focused on Nevada and Wyoming. Only one investor GuruFocus tracks owns the stock, Arnold Schneider (Trades, Portfolio), and he reduced his position by 3.4% in the third quarter.

Shares of the $18.42 million market cap stock closed flat Friday at 98 cents per share, down 41% year to date. It has a NNWC of 33 cents.

U.S. Gold Corp. had an annual average earnings growth of 57.9% over the past five years, with a price-book ratio of 1.53.

American Public Education Inc. (NASDAQ:APEI)

American Public Education is a for-profit education company. Chuck Royce (Trades, Portfolio) established a position in the company in the third quarter, while Paul Tudor Jones (Trades, Portfolio) increased his by 28.35% and Jim Simons (Trades, Portfolio) and firm Barrow, Hanley Mewhinney & Strauss made modest reductions.

Shares of the $476.46 million market cap company sank 1.69% Friday and have gained 14.36% year to date. The price closed Friday at $29.01 per share, compared to its NNWC of $9.72.

American Public Education has a price-earnings ratio of 19.20 and price-sales ratio of 1.61. American Public Education Inc. had an annual average earnings growth of 11.10% over the past 10 years.

REX American Resources Corp. (NYSE:REX)

REX American Resources Corp. is a former retail company that in 2010 transformed into an alternative energy company. Its guru shareholders are Jeremy Grantham (Trades, Portfolio), who started a position in the third quarter, Hotchkis & Wiley and Jim Simons (Trades, Portfolio).

Shares of REX American slid 1.54% Friday, for a 22.87% drop year to date. The price of $64.14 compares to its NNWC of $17.30 (REX officially fell just outside the required range, but briefly appeared on the screener during the day).

Rex American Resources Corp. has a market cap of $405.83 million, with a price-earnings ratio of 8.41 and price-sales ratio of 0.87. Rex American Resources Corp. had an annual average earnings growth of 13.4% over the past five years.

Find even more net-net stocks at the Ben Graham net-net screener here.

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About the author:

Holly LaFon
I'm a financial journalist with a master of science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


Rating: 0.0/5 (0 votes)

Comments

Brelje
Brelje - 1 month ago    Report SPAM

Looking good. I will be watching these.

Holly LaFon
Holly LaFon premium member - 1 month ago

You are right. The screener finds stocks between 100% to 300% of NNWC to generate more ideas, and I meant to write that. I will update the article. Thank you.

Niko4809
Niko4809 premium member - 1 month ago

Good ideas, but does it make sense using a screener that finds them between 100% to 300% of NNWC. I'd much rather buy a company at 50% of NNWC. These aren't really Ben Graham type net-net stock. These are stocks that might fall further and become net-net stocks. The whole idea of a net-net stock is to buy below liquidation value.

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