Despite a modest decline today, stocks enjoyed a September for all time.
The Dow Jones industrials ($INDU) finished September with a 7.7% gain. The Standard & Poor's 500 Index ($INX) was up 8.8%. Both enjoyed their best September performances since 1939. The Nasdaq Composite Index ($COMPX) added 12% for the month, its best September since 1998.
Since 1950, September has normally been the weakest month for stocks, but this time it confounded many analysts. They'd confidently expected the market to slide further after a weak August performance because of worries that the economy was about to sink back into recession.
And many who predicted a bad September see a weak October ahead. The economy faces too many head winds in the months ahead to move higher, they argue.
Thursday, September 30, 2010
Thursday, September 16, 2010
Ben Graham's selections today
There are 10 criteria in total.
The first 5 criteria measure ‘reward’ and is sensitive to price and earnings changes. The focus in this group of five criteria is on stock price, earnings and dividends.
The second group of 5 offers a measure of ‘risk’ and does not change rapidly with changes in price and earnings. Criteria number 6,7 and 8 represent the financial soundness of companies.
1. An earnings-to-price yield at least twice the AAA bond rate
2. P/E ratio less than 40% of the highest P/E ratio the stock had over the past 5 years
3. Dividend yield of at least 2/3 the AAA bond yield
4. Stock price below 2/3 of tangible book value per share
5. Stock price below 2/3 of Net Current Asset Value (NCAV)
6. Total debt less than book value
7. Current ratio great than 2
8. Total debt less than 2 times Net Current Asset Value (NCAV)
9. Earnings growth of prior 10 years at least at a 7% annual compound rate
10. Stability of growth of earnings in that no more than 2 declines of 5% or more in year end earnings in the prior 10 years are permissible.
Not a single stock will be able to pass this filter today. When the screen reaches no. 3, only around 30 stocks make it. When you hit the fourth condition, the list becomes 0.
The first 5 criteria measure ‘reward’ and is sensitive to price and earnings changes. The focus in this group of five criteria is on stock price, earnings and dividends.
The second group of 5 offers a measure of ‘risk’ and does not change rapidly with changes in price and earnings. Criteria number 6,7 and 8 represent the financial soundness of companies.
1. An earnings-to-price yield at least twice the AAA bond rate
2. P/E ratio less than 40% of the highest P/E ratio the stock had over the past 5 years
3. Dividend yield of at least 2/3 the AAA bond yield
4. Stock price below 2/3 of tangible book value per share
5. Stock price below 2/3 of Net Current Asset Value (NCAV)
6. Total debt less than book value
7. Current ratio great than 2
8. Total debt less than 2 times Net Current Asset Value (NCAV)
9. Earnings growth of prior 10 years at least at a 7% annual compound rate
10. Stability of growth of earnings in that no more than 2 declines of 5% or more in year end earnings in the prior 10 years are permissible.
Not a single stock will be able to pass this filter today. When the screen reaches no. 3, only around 30 stocks make it. When you hit the fourth condition, the list becomes 0.