Fundamentally Solid Value Picks in the Spirit of Graham and Doddsville


In his revered 1984 speech at Columbia Business School, Warren Buffett referred to the strong track records of a group of prominent value investors as follows: “A concentration of winners that simply cannot be explained by chance can be traced to this particular intellectual village.” In other words, writes Validea CEO John Reese in a recent Forbes article, value investing pays off in the long term.

The article emphasizes the importance of focusing on business fundamentals when evaluating a stock and steering clear of the “short-term guessing game” of attempting to predict market movements. Using Validea’s value-oriented guru strategies, Reese identifies the following promising stocks:

Valero Energy (VLO), a manufacturer and marketer of transportation fuels, has an attractively low price-to-sales ratio of 0.3. Our Graham-based investment model also favors the company’s low price-earnings ratio of 8.6, reasonable price-book ratio of 1.2 and long-term earnings-per-share growth of 23.7%.

Lear (LEA), a leading supplier of electrical systems to the global automotive industry, gets high marks under our John Neff-inspired stock screen due to its favorable P/E of 9.1 and positive free cash flow. The company recently reported strong second-quarter earnings.

Westinghouse Air Brake Technologies (WAB), doing business as Wabtec Corp., is a leading supplier of technology-based products and services for rail, transit and other global industries. Our Buffett-based model likes the company’s stable earnings-per-share, return-on-equity and return-on-capital (which includes debt). This model estimates a long-term return of 15%.

Bridgestone Corp. (BRDCY), the tire-and-rubber company, scores well under our Graham-inspired investment model due to its modest price/earnings and price/book ratios of 10 and 1.3, respectively, as well as the firm’s debt ($1.6 billion) in relation to net current assets ($8.5 billion).

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