When I first started in the industry, I was working as the associate editor of a dividend stock newsletter. My mentor told me to go out and get a copy of Benjamin Graham’s “The Intelligent Investor”.
Graham was an economist who earned himself the moniker of the “father of investing” because of his strategy to make money in the stock market without taking on big risk. And many people attribute their success at least partly to him.
A good example is Warren Buffett, who studied under Graham at Columbia Business School. He says Graham played a significant role in shaping his career. Buffett even named his first son after him.
So, what was so important about Graham’s teaching?
He stressed the importance of viewing a stock market investment as an ownership interest in the business verses just a ticker with a price tag.
That’s really the difference between investors and day traders. Day traders think of stocks as tickers with a price tag. The goal is to buy low and sell high … and do that as quickly as possible to free up that money for the next trade.
When you think of a stock as an ownership interest in the business, you have to be prepared to hold onto that stock for a longer time horizon. Graham constantly reminded his students that markets are not efficient enough to work in a rational manner.
“Mr. Market” sometimes proposes prices that made sense while other times prices don’t seem to be following economic reality at all. The solution according to Graham is to be patient, do your research and wait for buying opportunities … without chasing the market and without letting emotion run the show.
To achieve this, he laid out very specific guidelines. He believed that portfolios should have ten to thirty companies and should be diversified so as not to be impacted by one specific industry. He also recommended looking for companies that were conservatively financed and paid a dividend.
Earnings growth is a must to ensure you get more bang for you buck in the future. Graham recommended it should be at least 2.9% every year. And he emphasized always making sure that you don’t pay too much for the company.
That’s a very rudimentary and quick summary. And I have never treated Graham’s method like it was the law. But for today, I thought it would be interesting see what happens if we combine his guidelines with the Weiss Ratings stock screener.
Here are the screener parameters. The company must:
1. Pay a dividend
2. Have price to earnings of less than 15
3. Have EPS growth of at least 2.9%
My results were 46 “Buy”-rated stocks, 411 “Hold”-rated stocks and 101 “Sell”-rated stocks.
The top-rated stock according to the Graham guidelines is Ingles Markets Inc. (Nasdaq: IMKTA, Rated “B”).
Robert Ingle opened the first Ingles supermarket in Asheville, N.C. in 1963 upon seeing the opportunity to invest in smaller towns and communities throughout the Carolinas. The company now operates approximately 200 stores in six states with annual sales of almost $4 billion.
It fits into my screener with a P/E of 5.7, EPS growth of 79% and a dividend of 16.5 cents paid quarterly.
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Since these are considered more long-term holdings, I looked at share price movement over a longer period of time than I usually do. In the last three years, shares are up 89%.
Ranking second was Verizon Communications (NYSE: VZ, Rated “B”). I don’t have to say too much here. Verizon is a household name and is one of the largest communication technology companies in the world. We’re in a global race to 5G, so this is a company to keep an eye on anyway.
Our next runner up was global healthcare solution leader AmerisourceBergen Corp (NYSE: ABC, Rated “B”).
If you’ve never read Benjamin Graham’s book, I highly recommend it. Or there are a lot of great summaries from people that have studied and been successful using his theories as a base.
And if you still haven’t checked out the stock screener on our site, check it out by clicking here. And let me know if you find anything interesting.
Best,
Kelly Green
