Validea’s “Strategy of the Week” series spotlights one of our guru-based models, offering a deeper understanding of the strategy’s core criteria, why they matter, and a look at how the model has performed over time. This feature combines educational insights with practical applications to help you better navigate these time-tested approaches.
This Week’s Featured Strategy: The Benjamin Graham Value Investor Model
This week, we turn to one of the most foundational and influential investment strategies ever created—the Benjamin Graham Value Investor Model, based on principles laid out in Graham’s classic, The Intelligent Investor.
Known as the “Father of Value Investing,” Benjamin Graham pioneered the approach of buying fundamentally sound companies at discounted prices. His teachings have shaped generations of investors, including Warren Buffett, John Templeton, and Mario Gabelli. The core of his philosophy? Focus on intrinsic value, preserve capital, and demand a “margin of safety” before making any investment.
And yet, while Graham’s principles are timeless, the performance of value strategies has faced headwinds in recent years.
The Challenges—and Enduring Appeal—of Value Investing
Over the past 10 to 15 years, value strategies, including those inspired by Graham, have struggled relative to growth-focused approaches. An extended period of low interest rates, rapid technological innovation, and a market dominated by a handful of mega-cap growth stocks has made it difficult for traditional value strategies to outperform.
Buying low-priced stocks can also carry risks. Cheap stocks are sometimes cheap for a reason—due to deteriorating fundamentals, industry headwinds, or structural business challenges. This reality requires value investors to remain disciplined and selective, avoiding potential “value traps.”
But despite these challenges, many investors continue to believe in the fundamental tenets of value investing—and for good reason.
- A Strong Foundation in Data: Over nearly a century, value investing has been supported by compelling long-term evidence. Historically, buying stocks with low prices relative to earnings, book value, and cash flows has delivered superior returns over time.
- Behavioral Advantages: Value investing requires patience and the ability to go against the crowd—traits that can give disciplined investors a long-term edge.
- Risk-Adjusted Appeal: Value strategies often focus on companies with strong balance sheets, consistent earnings, and conservative valuations—characteristics that appeal to investors seeking downside protection and capital preservation.
For many investors, these factors make value strategies an appealing option, even during periods when they fall out of favor.
How the Graham Value Model Works
Graham’s approach was designed to protect investors from significant losses while delivering reasonable returns. His model is both conservative and disciplined, focusing on balance sheet strength and attractive valuations. Below are the key criteria our Graham-based model uses to find potential investments.
Key Criteria for Stock Selection
✔ Sector Exclusion – Graham’s strategy excludes complex and high-risk sectors like technology and financials. The focus remains on industrial and consumer sectors, where earnings are more predictable.
✔ Adequate Company Size (Sales ≥ $1 Billion) – Large, established businesses are typically less risky and more stable than smaller, unproven firms.
✔ Strong Liquidity (Current Ratio ≥ 2) – A company’s current assets must be at least twice its current liabilities, ensuring financial stability.
✔ Low Debt Levels (Long-Term Debt ≤ Net Current Assets) – Limiting debt helps safeguard a company’s financial health, especially during economic downturns.
✔ Consistent Earnings Growth (EPS Growth ≥ 30% Over 10 Years) – Graham required earnings stability and growth over time, with no negative EPS in the past decade.
✔ Moderate Valuation (P/E ≤ 15) – Limiting how much you pay for earnings ensures you don’t overpay for future growth that may never materialize.
✔ Reasonable Price/Book Ratio (P/B × P/E ≤ 22) – A safeguard against excessive valuations.
Example: A P/B ratio of 1.3 combined with a P/E of 11.1 equals 14.43—well within Graham’s guidelines.
Performance Highlights
The Graham Value Model has delivered strong long-term performance despite facing challenges common to deep value strategies. Since its inception on Validea in 2003, the model’s 10-stock, annually rebalanced portfolio has returned 825%, outperforming the S&P 500 by 361.8%. This portfolio is set to be rebalanced in June 2025, so you can follow the portfolio by accessing Validea today.
However, like many value strategies, the model has experienced periods of underperformance—particularly when growth stocks have dominated the market. These cycles can test investor patience but are part of the long-term nature of value investing.
The Ben Graham Value Model has delivered some impressive years, with top performances in 2013 (+68.5%), 2021 (+40.8%), and 2010 (+36.9%). However, like many value strategies, it has also faced challenging periods. The worst years include 2008 (-27.2%), 2018 (-22.6%), and 2015 (-22.1%). These results reflect both the potential rewards and the risks of deep value investing, reinforcing the need for patience and a long-term perspective.
* Returns are model returns and do not reflect actual trading. Full performance disclaimer
Top Rated Stocks in Today’s Market
The following table highlights the top ten highest-rated stocks based on the Value Investor model. Click on the ticker symbols to access a detailed guru analysis for each stock.
| Ticker | Company | Current Score | Latest Close | Market Cap ($mil) | PE Ratio | EPS Growth | Yield | Relative Strength | Shareholder Yield |
|---|---|---|---|---|---|---|---|---|---|
| SCVL | SHOE CARNIVAL INC | 100% | $21.52 | $585 | 7.9 | 33.4% | 2.4% | 35 | 3.2% |
| MLR | MILLER INDUSTRIES INC | 100% | $45.54 | $521 | 8.3 | 26.2% | 1.7% | 53 | 0.6% |
| BCC | BOISE CASCADE CO | 100% | $98.21 | $3,725 | 10.3 | 12.9% | 0.6% | 42 | 1.3% |
| IMKTA | INGLES MARKETS INC | 100% | $61.32 | $1,165 | 14.8 | -5.8% | 1.1% | 44 | 2.1% |
| BZH | BEAZER HOMES USA INC | 100% | $21.77 | $679 | 5.5 | 11.4% | 0.0% | 35 | -0.0% |
| CRI | CARTER’S INC | 100% | $41.55 | $1,496 | 8.1 | -0.4% | 7.7% | 24 | 12.4% |
| BG | BUNGE GLOBAL SA | 100% | $73.13 | $9,797 | 9.1 | -5.3% | 3.7% | 41 | 1.8% |
| NPSNY | NASPERS LTD (ADR) | 100% | $51.15 | $41,864 | 13.8 | 12.8% | 0.0% | 89 | 17.6% |
| TMHC | TAYLOR MORRISON HOME CORP | 86% | $59.48 | $6,051 | 7.2 | 31.6% | 0.0% | 64 | 4.0% |
| TOL | TOLL BROTHERS INC | 86% | $106.61 | $10,601 | 7.3 | 34.0% | 0.9% | 47 | 6.9% |
Key Takeaways
- Value investing isn’t easy. It requires patience, discipline, and a willingness to go against the crowd.
- While the last decade has been challenging, many investors remain committed to value strategies because of their proven long-term success and sound investing logic.
- Graham’s emphasis on the margin of safety, conservative balance sheets, and disciplined valuation still offers a powerful framework for investors today.
For those who believe in the power of fundamentals and want an approach that prioritizes capital preservation while still aiming for solid returns, the Graham Value Model offers a time-tested blueprint.
For those interested in a deeper dive into the methodology, you can watch this video overview on Validea’s YouTube, which explains how the Value Investor model selects stocks and why it may be an effective strategy for value stock selection and analysis.
