The effectiveness of your search for value opportunities can be improved tremendously if it considers fairly priced stocks during the screening. This is what Benjamin Graham, the father of value investing, recommended: multiply the stock’s price-earnings ratio by its price-book ratio to build what is known as the "Graham blended multiplier," with the ideal result for investment being below 22.5.
Any ideal result for the Graham blended multiplier signals the presence of an undervalued stock. Thus, the following securities appeal to value investors as they have an ideal value for the Graham blended mutiplier as well as a market capitalization of more than $2 billion.
Assured Guaranty
The first company under consideration is Assured Guaranty Ltd. (AGO, Financial).
Shares of the Bermuda-based provider of credit protection to public finance and finance markets closed at $49.47 on Friday for a market capitalization of $4.72 billion.
The stock has a Graham blended multiplier of 10.49, as the price-earnings ratio is 14.37 and the price-book ratio is 0.73. The insurance industry has a median of 13.63 for the price-earnings ratio and of 1.16 for the price-book ratio.
Assured Guaranty surpasses 56.2% of competitors operating in the insurance industry in terms of better price-earnings ratio and 76.67% of competitors in terms of better price-book ratio.
Wall Street issued a buy recommendation rating and has established an average target price of $59.
Over the past year through Dec. 6, the share price has increased 28% to above the 200-, 100- and 50-day simple moving average lines.
The 52-week share price range is $36.13 to $49.87. The dividend yield is 1.46% versus the industry median of 3.44% as of Dec. 6. The company is currently paying a cash quarterly dividend of 18 cents per common share. Assured Guaranty has been paying dividends for more than 15 years.
The 14-day relative strength index of 66 suggests the stock is neither overbought nor oversold.
Wienerberger
The second company to have a look at is Wienerberger AG (WBRBY, Financial).
Shares of the Austrian building materials company closed at $5.57 on Friday for a market capitalization of $3.19 billion.
The stock has a Graham blended multiplier of 19.83, as the price-earnings ratio is 13.87 and the price-book ratio is 1.43. The building materials industry has a median of 15.32 for the price-earnings ratio and of 1.06 for the price-book ratio.
Wienerberger’s price-earnings ratio is ranked higher than 54.81% of competitors operating in the building materials industry and its price-book ratio is ranked higher than 36% of competitors.
Wall Street issued an overweight recommendation rating and has set an average target price of $5.88.
Over the past year through Dec. 6, the share price has risen 37% and is above the 200-, 100- and 50-day simple moving average lines.
The 52-week range is $3.88 to $25.80. The company paid an annual cash dividend of 11.2 cents per common share on May 20 earlier this year, generating a 2.02% trailing 12-month dividend yield versus the industry median of 2.63% as of Dec. 6. Wienerberger has paid dividends for 12 years.
The 14-day relative strength index of 63 suggests the stock is neither overbought nor oversold.
Industrias Bachoco
The third company to consider is Industrias Bachoco S.A.B. de C.V. (IBA, Financial).
Shares of the Mexican poultry producer closed at $49.57 on Friday for a market capitalization of $2.48 billion.
The stock has a Graham blended multiplier of 14.96, as the price-earnings ratio is 12.68 and the price-book ratio is 1.18. The farm products industry has a median of 19.33 for the price-earnings ratio and a median of 1.38 for the price-book ratio.
Industrias Bachoco beats 816 out of 1,126 competitors operating in the farm products industry in terms of better price-earnings ratio and 895 out of 1,556 competitors in terms of better price-book ratio.
Wall Street issued an overweight recommendation rating and has established an average target price per share of $62.19.
Over the past year through Dec. 6, the share price has risen 24% to above the 200-, 100- and 50-day simple moving average lines.
The 52-week range is $37.66 to $57. The dividend yield is 1.77% versus the industry median of 2.02% as of Dec. 6. The company paid a semi-annual cash dividend of 43.9 cents per common share to its shareholders on July 19 earlier this year. Industrias Bachoco has distributed net retained earnings for 21 years.
The 14-day relative strength index of 46 indicates the stock is neither overbought nor oversold.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- These Megas Will Keep on Outperforming
- 3 Low Price-Book Stocks for Value Investors to Consider
- 3 High-Quality Stocks for the Value Investor
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