Ben Graham Checklist for Finding Undervalued Stocks
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BEN GRAHAM CHECKLIST FOR FINDING UNDERVALUED STOCKS
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He created a number of checklists at different times in his career to serve different investment objectives and portfolio strategies.
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http://myinvestingnotes.blogspot.com/2008/11/ben-graham-checklist-for-finding.html
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Company Name:
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Identify and quantify important value componentsValue
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Price
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Earnings
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P/E
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E/P
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High-grade corporate bond yield
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Dividend yield
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Tangible book value per share
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Net current asset value (CA - CL)
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Total Debt
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Liquidation value (Book value)
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YesNo
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RISK
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1E/P is double the high-grade corporate bond yield
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2P/E ratio that is 0.4x the highest average P/E achieved in the last 5 years.
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3DY is 2/3 the high-grade bond yield
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4Stock price of 2/3 the tangible book value per share
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5Stock price of 2/3 the net current asset value
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FINANCIAL STRENGTH
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6Total debt is lower than tangible book value
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7Current ratio (CA/CL) is > 2
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8Total debt is no more than liquidation value
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EARNINGS STABILITY
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9Earnings have doubled in most recent 10 years.
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10Earnings have declined no more than 5% in 2 of the past 10 years.,
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YesNo
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GOOD VALUEIf stock meets 7 of the 10 criteria.
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INCOME ORIENTEDPay special attention to items 1 to 7
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GROWTH AND SAFETYItems 1 to 5 and 9 to 10 are important
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AGGRESSIVE GROWTHIgnore item 3, reduce emphasis on 4 to 6, and weigh 9 and 10 heavily.
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Again, these checklists are a guideline and example, not a cookbook recipe you should follow precisely. They are a way of thinking and an example of how you may construct your own value investing system.
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The criteria mentioned above are probably more focussed on dividends and safety than even today's value investors choose to be. But today's value investing practice owes an immense debt to this type of financial and investment analysis.
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