Benjamin Graham, a pioneer of value investing, co-author with David Dodd of "Security Analysis" and author of "The Intelligent Investor," suggested searching for reasonably priced stocks to enhance the likelihood of finding value opportunities.
Investors can do that by picking stocks with a Graham blended multiplier of less than 22.5 as their shares are probably trading cheaply.
The Graham blended multiplier is calculated by multiplying the price-earnings ratio of the stock by its price-book ratio.
Here are some results of my search, which, excluding micro and nano caps, increases the odds of unearthing successful investments.
Hitachi
The first company is Hitachi Ltd. (HTHIY, Financial). Shares of the Japanese international conglomerate company closed at $75.5 on Friday for a market capitalization of $36.47 billion.
The stock has a Graham blended multiplier of 21.35, resulting from a price-earnings ratio of 18.09 multiplied by a price-book ratio of 1.18. The conglomerates industry has a median of 14.29 for the price-earnings ratio and of 1.02 for the price-book ratio.
Hitachi’s price-earnings ratio beats 120 out of 299 industry competitors, and its price-book ratio beats 174 out of 432 sector peers.
Over the past year through Nov. 22, the stock has climbed 30% to above the 200- and 100-day simple moving average lines. The share price is still slightly below the 50-day line.
The 52-week range is $51.25 to $79.67.
The stock has a dividend yield of 1.22% compared to the industry median of 2.79% as of Nov. 22. The company paid a semi-annual dividend of 91.9 cents per common share on June 7. Hitachi has been distributing dividends since 1985.
The 14-day relative strength index of 47 suggests the stock is neither overbought nor oversold.
Golub Capital
The second company is Golub Capital BDC Inc. (GBDC, Financial). Shares of the Chicago-based asset management firm traded at around $18.12 on Friday for a market capitalization of $2.4 billion.
The stock has a Graham blended multiplier of 17.66, generated from a price-earnings ratio of 15.36 multiplied by a price-book ratio of 1.15. The asset management industry has a median of 13.85 for the price-earnings ratio and a median of 1.02 for the price-book ratio.
Golub Capital BDC tops 220 out of 489 competitors operating in the asset management industry in terms of a higher price-earnings ratio and tops 339 out of 773 rivals in terms of a better price-book ratio.
Wall Street issued an overweight recommendation rating with an average target price of $18.75 for shares of Golub Capital BDC. The rating means that the stock is expected to outperform either its industry or the entire market within 12 months.
In the past 12 months through Nov. 22, the share price declined 2% to slightly above the 200- and 50-day simple moving average lines. It is still below the 100-day line.
The 52-week range is $16.21 to $19.38.
On Sept. 27, the company paid a quarterly dividend of 32 cents per common share to its shareholders, producing a 7.05% trailing 12-month dividend yield versus the industry median of 4.21%. Golub Capital has been paying dividends since June 2010.
The 14-day relative strength index of 62 indicates the stock is neither overbought nor oversold.
Scorpio Bulkers
The third company is Scorpio Bulkers Inc (SALT, Financial). Shares of the Monaco-based owner and worldwide operator of dry-bulk carriers closed at $5.65 on Friday for a market capitalization of approximately $409.56 million.
The stock has a Graham blended multiplier of 8.39. The result derives from a price-earnings ratio of 18.23 and a price-book ratio of 0.46. The transportation industry has a median of 14.85 for the price-earnings ratio and of 1.13 for the price-book ratio.
Scorpio Bulkers’ price-earnings ratio is ranked higher than 254 out of 644 competitors, and its price-book ratio is ranked higher than 721 out of 834 competitors.
Wall Street issued an overweight recommendation rating for shares of Scorpio Bulkers with an average target price of $8.02.
Over the past 12 months through Nov. 22, the share price has increased only 1% to close above the 200- day simple moving average line. It is significantly below the 100- and 50-day lines.
The 52-week range is $3.32 to $7.23.
The dividend yield is 1.41% versus the industry median of 2.41% as of Nov. 22. On Dec. 13, the company will pay a quarterly cash dividend of 2 cents per common share to its shareholders of record as of Nov 15.
The 14-day relative strength index of 43 suggests the stock is neither overbought nor oversold.
Disclosure: I have no positions in any securities mentioned.
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