Top Stock Picker Follows Graham and Dodd

“For the second consecutive year, the top stock picker is a practitioner of the valuation model introduced in the 1930s by Columbia University professors Benjamin Graham and David Dodd,” writes Bloomberg’s Matthew Winkler. That stock picker is J. David Wagner, vice president of Baltimore-based T. Rowe Price Group and manager of the T. Rowe Price Small-Cap Value Fund, which returned 30 percent last year (more than double that of the S&P 500): Winkler writes, “Wagner’s winning strategy depended on identifying companies too small for most analysts to acknowledge.” Wagner’s model, he says, considers earnings, dividends, cash flow and book value […]

Greenblatt’s Magic Formula-Worthy Picks

Most investors lack patience and don’t understand underperformance, which motivates them to abandon funds when performance dips—precisely the time they shouldn’t, says Joel Greenblatt, co-founder of Gotham Asset Management. In a recent Forbes article, Validea CEO John Reese explains the fundamentals of Greenblatt’s “Magic Formula,” which uses return-on-capital and earnings yield to identify good companies selling for bargain prices. Reese identified the top ten Magic Formula picks and, including the following four that also earn high marks from other guru strategies: Natural Health Trends (NHTC) is a direct-selling and e-commerce company that sells personal care, wellness and quality-of-life products. In […]

A Contrarian View May Be in Order

The seven-year-old bull market that started in the aftermath of the financial crisis could be facing a shift over the next five years, says Validea CEO John Reese in last week’s Globe and Mail. Reese suggests that such a shift could include a resurgence of emerging markets and trends favoring cyclical, value and small cap stocks over defensive, growth and large cap names. “Investors appear to be betting that economic growth has the potential to come in better than expected in the near term, because cyclical companies are sensitive to economic growth trends.” “Perhaps,” he says, “investors have grown wary […]

Benjamin Graham Inspired Picks

In his book The Intelligent Investor, the “Father of Value Investing” (and Warren Buffett’s mentor) drives home the importance of evaluating a business’s fundamentals before investing. In a recent article for Forbes, Validea CEO John Reese explains the metrics he used  to create his Graham-inspired stock screening model and offers the following high-scoring picks: Genesco (GCO) is a retailer and wholesaler of footwear, apparel and accessories that earns high marks for its solid revenue base, liquidity and low leverage. Long-term growth in earnings-per-share well exceeds the minimum requirement under this model. Myriad Genetics (MYGN) is engaged in the discovery, development […]

Investing Principles Part II: Identifying Value in Earnings

This section of the Tweedy Browne publication What Has Worked In Investing referenced in yesterday’s blog describes the investment approach related to low price in relation to earnings. Legendary value investor Benjamin Graham’s focused on what he called the “margin of safety” (the difference between a stock’s price and the company’s underlying value) and gravitated toward stocks that had price-earnings ratios below 15. The Tweedy publication references a study that tested Graham’s criteria on stocks listed on the NYSE-AMEX index (between 1974 and 1981). Results show that an investor who employed Graham’s criteria during this period achieved a mean annual […]