Tuesday, March 20, 2012


Over the years, I've found it useful when James Montier (writing from wherever he was at the time) would run a value screen and show the number of names that came up. It gave another data point to compare the attractiveness of ideas in the market at any given time. He often used a screen run by Ben Graham, which he described in his March 2011 paper “The Seven Immutable Laws of Investing”:

"These projections are reinforced for equities when we investigate the number of stocks able to pass a deep value screen designed by Ben Graham. In order to pass this screen, stocks are required to have an earnings yield of twice the AAA bond yield, a dividend yield of at least two-thirds of the AAA bond yield, and total debt less then two-thirds of the tangible book value. I’ve added one extra criterion, which is that the stocks passing must have a Graham and Dodd P/E of less than 16.5x."

I often run screens similar to this, and decided to start running a certain version of it periodically and post the number of results that show up. I’m not going to add the Graham and Dodd P/E to this particular version, but I will add a pre-tax return on capital criteria (to try and find at least decent businesses) using the formula from Joel Greenblatt’s books, and a cash flow from operations criteria (to try and weed out where accounting earnings may not translate into free cash flow). Here are the summary metrics I will use for now:

  • Market Cap over $10 million
  • Industry: NOT Utilities or Investment Funds
  • Geographic Locations: USA, Canada, UK, Australia
  • TEV/LTM EBIT under 8.34x
  • Dividend yield greater than 2.6%
  • TD/TBV less than 67%
  • EBIT/(NWC+NFA) greater than 12%
  • CF from ops greater than 67% of NI

I decided to use 12% as the pre-tax hurdle, which would translate into about 7-9% after tax (depending on the tax rate) for a minimum return on capital and earnings yield. This screen today turns up 208 results. I’m not going to list all of the names here, but here are a few to give an example of the things that turned up:

Intel Corporation (NasdaqGS:INTC), Walgreen Co. (NYSE:WAG), Newmont Mining Corp. (NYSE:NEM), Kohl's Corp. (NYSE:KSS), London Stock Exchange Group plc (LSE:LSE), Corby Distilleries Ltd. (TSX:CDL.A), STW Communications Group Ltd. (ASX:SGN), Calamos Asset Management Inc. (NasdaqGS:CLMS).

Disclosure: This article is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by Chanticleer Investment Partners ("CIP") or any other entities related to or owned by CIP's parent company, Chanticleer Holdings, Inc. Neither I nor any investment product I co-manage at Chanticleer have an investment in the stock(s) mentioned in this article at the time of posting.