Benjamin Graham, widely recognized as the pioneer of value investing, developed a methodical approach to identifying undervalued stocks. Validea has adapted Graham’s principles into a systematic strategy that prioritizes financial stability and proven performance over speculative growth.
Investment Criteria:
- Company Fundamentals
- Must generate at least $340 million in annual sales
- Excludes technology sector investments
- Must demonstrate positive earnings for 5 consecutive years
- Balance Sheet Requirements
- Current ratio must exceed 2.0 (current assets divided by current liabilities)
- Net current assets must be greater than long-term debt
- Industrial companies: Total debt cannot exceed 100% of equity
- Utility companies: Long-term debt limit of 230% of equity
- Historical Performance
- Earnings must show 30% or greater cumulative growth over 10 years
- Growth calculated using 3-year earnings averages
- Value Metrics
- P/E ratio must be 15 or lower (using 3-year average earnings)
- Combined P/E and P/B ratios cannot exceed 22
The strategy focuses on finding established companies with strong balance sheets, consistent profitability, and attractive valuations. By applying these strict criteria, investors aim to identify financially sound businesses trading below their intrinsic value, while maintaining a margin of safety.
Here are the top 10 stocks using Validea’s Benjamin Graham strategy for November of 2024.
Further Research
