Benjamin Graham, often called the “father of value investing,” developed a systematic approach to finding undervalued stocks that has influenced investors for generations, including Warren Buffett. Graham’s strategy focuses on identifying established, financially sound companies trading below their intrinsic value, rather than speculative growth ventures.
Core Philosophy
Graham believed in investing in proven businesses with demonstrable track records rather than speculative or unproven companies. This approach prioritizes capital preservation and seeks a “margin of safety” between a stock’s market price and its intrinsic value.
Validea’s Graham-Based Investment Model
Validea has created a quantitative model based on Graham’s principles, incorporating specific criteria across four key areas:
Operational Fundamentals
- Size Requirement: Annual revenue must exceed $340 million, ensuring sufficient business scale and stability
- Earnings Consistency: Companies must demonstrate profitability for five consecutive years, proving operational reliability
- Industry Focus: Avoids technology companies in favor of traditional industries with more predictable business models and easier-to-value assets
Financial Strength Requirements
- Liquidity Standard: Current ratio (current assets divided by current liabilities) must exceed 2.0, demonstrating strong short-term financial health
- Debt Management: Net current assets must exceed long-term debt, ensuring the company isn’t overleveraged and could theoretically liquidate current assets to cover all debt
Growth Criteria
- Long-term Performance: Earnings must show growth of at least 30% over a ten-year period, demonstrating sustainable business expansion
- Earnings Stability: Uses three-year earnings averages to smooth out temporary fluctuations and focus on the underlying earnings power
Valuation Thresholds
- P/E Limitation: Price-to-earnings ratio (calculated using three-year average earnings) must not exceed 15, preventing overpayment for earnings
- Combined Valuation Metric: The sum of P/E and price-to-book ratios must remain below 22, providing a comprehensive valuation check
This disciplined, numbers-driven approach helps investors identify financially sound companies that may be temporarily undervalued by the market, creating potential long-term investment opportunities while minimizing downside risk.
Discover how Validea’s models can help you identify high-quality, long-term investments, even in changing market conditions. Visit Validea.com to access in-depth stock analysis and tools designed to emulate proven investment principles. Take a Free Trial Today!
Here are the top 10 stocks using Validea’s Benjamin Graham strategy for March of 2025.
| Ticker | Company Name | Value Investor | Price | Market Cap ($mil) | PE Ratio | Price/ Sales | Relative Strength | Price/ Book | Price/ Cash Flow | Dividend Yield | Long-Term EPS Growth |
|---|---|---|---|---|---|---|---|---|---|---|---|
| BCC | BOISE CASCADE CO | 100 | $100.36 | $3,807 | 10.5 | 0.6 | 80 | 1.8 | 7.3 | 0.6% | 12.9% |
| BG | BUNGE GLOBAL SA | 100 | $75.24 | $10,080 | 9.3 | 0.2 | 80 | 1.0 | 6.1 | 3.6% | -5.3% |
| BZH | BEAZER HOMES USA INC | 100 | $22.16 | $691 | 5.6 | 0.3 | 66 | 0.6 | 5.0 | 0.0% | 11.4% |
| CRI | CARTER’S INC | 100 | $40.38 | $1,454 | 7.9 | 0.5 | 80 | 1.7 | 6.0 | 7.9% | -0.4% |
| MLR | MILLER INDUSTRIES INC | 100 | $44.51 | $509 | 8.1 | 0.4 | 66 | 1.3 | 6.6 | 1.7% | 20.1% |
| NPSNY | NASPERS LTD (ADR) | 100 | $53.74 | $44,418 | 14.5 | 6.5 | 80 | 0.9 | 5.5 | 0.0% | 12.8% |
| SCVL | SHOE CARNIVAL INC | 100 | $22.65 | $616 | 8.3 | 0.5 | 66 | 1.0 | 5.9 | 2.3% | 33.3% |
| RMR | RMR GROUP INC | 86 | $17.26 | $550 | 13.0 | 0.6 | 31 | 1.2 | 9.4 | 10.4% | -8.3% |
| RES | RPC INC | 86 | $5.53 | $1,195 | 13.0 | 0.8 | 66 | 1.1 | 5.3 | 2.9% | |
| RGP | RESOURCES CONNECTION INC | 86 | $6.84 | $226 | 13.8 | 0.4 | 80 | 0.7 | 6.1 | 8.2% | -12.3% |
Further Research
