Stocks Ben Graham Might Buy If He Were Alive Now: John Dorfman
Interesting thoughts from a fellow value investing guru.
Click Here To Read: Stocks Ben Graham Might Buy If He Were Alive Now: John Dorfman
Introduction (Via Bloomberg):
He was a skier, bon vivant, ladies’ man, Columbia University professor, hedge-fund manager and mentor to Warren Buffett.
Oh yes, Ben Graham is also considered the father of value investing.
Graham, who lived from 1894 to 1976, saw stock prices as behaving like planets revolving around the sun. The intrinsic value of a stock, like the sun, acts as a center of gravity. The stock’s price can swing higher or lower but always ends up orbiting around the intrinsic value.
In his books “Security Analysis” (co-written by David Dodd and first published in 1934) and “The Intelligent Investor” (1949), Graham introduced many of the tools of modern investing.
At Columbia and at Graham’s hedge fund, the Graham-Newman Partnership, Graham taught and befriended Buffett, widely considered today’s greatest investor. In an introduction to the latest (2003) edition of “The Intelligent Investor,” Buffett said that Graham influenced him “more than any other man except my father.”
Buffett wrote that Graham had “virtually total recall” coupled with “unending fascination with new knowledge.”
Each year from 2001 through 2006 I wrote a column on stocks I believed Graham would have liked were he still alive. This year I revive the tradition.
I have designed a few criteria that I believe reflect the spirit, and to some extent the letter, of the maestro’s methods.
Excerpt (Via Bloomberg)
What I call Graham stocks have a share price that’s less than book value (corporate net worth) and less than 12 times earnings, as well as debt less than 50 percent of stockholders’ equity.
Graham’s own metrics were vastly more complex and numerous, and he allowed room for judgment. Also, because he did much of his investing in the 1930s and 1940s, Graham was able to find some bargains the likes of which do not exist today.
Nonetheless, I think Graham would find some stocks to like if he were an active investor now.
Investment Ideas (Via Bloomberg)
1. One example is Tutor Perini Corp., a general contractor that specializes in large construction projects. It is based in Sylmar, California.I like Tutor Perini’s ability to tackle big and diverse projects. It has built hotels and convention centers, airport runways, solar plants, the police headquarters building in Los Angeles. The ability to take on difficult projects often confers some pricing power.
2. Another stock I think Graham might choose is Boston Scientific Corp., at 0.9 times book value. Based in Natick, Massachusetts, the company makes blood-vessel stents, defibrillators and other medical devices.
3.My next recommendation is Houston-based Rowan Cos., an oil and natural-gas driller that also manufactures offshore rigs. In October, Rowan announced it would resume building an offshore rig at its shipyard in Brownsville, Texas. Construction of the rig had been mothballed because Rowan wasn’t willing to commit $120 million to finish building it, not knowing who would buy it and for what price.
4. I’ll close with Cabela’s Inc., a retailer of hunting and sporting gear based in Sidney, Nebraska. The company, which was founded in 1961 and went public in 2004, is like an old friend to its clientele. It knows their needs and habits well. At nine times earnings and 0.9 times book value, I think it would feel comfortable to Graham.
Click Here To Read: Stocks Ben Graham Might Buy If He Were Alive Now: John Dorfman
