This post is a follow-up to Here’s A Quick Guide To One Of Ben Graham’s Investing Strategies.
If you need a quick way to learn about stock market investing, then read that post.
In my opinion, its the simplest of Ben Graham’s investing strategies that a beginner can implement.
I’m a fan of screeners.
Some hard-core value investors I know will not use them and instead read hundreds of company reports and news announcements to find an undervalued company.
There is nothing wrong with this.
Its just that screeners such as those found on ADVFN can help time-starved investors to quickly find a short list of stocks and shares that fit one or more of Ben Graham’s investing criteria. This is the subject of today’s post.
Lets just get straight to it.
The Relatively Unpopular Large Company
Here are Ben Graham’s 5 investing criteria for the strategy he called The Relatively Unpopular Large Company.
For a more comprehensive look at these 5 criteria take a look at Here’s A Quick Guide To One Of Ben Graham’s Investing Strategies:
- Make sure that the company is large – a market cap of over $10 billion for US companies or membership of the FTSE 100 for UK companies
- Make sure that the company is unpopular – reduced earnings, public anger, an expensive lawsuit, high ranking employee resignations are some of the more common examples of why a company is unpopular but this is by no means an exhaustive list
- Make sure that the company’s share price has declined – the way to tell: pull up a price chart on ADVFN, if the share price has been going down, it has been declining.
- Make sure that the company’s P/E ratio is at the lower end or below its past average – ADVFN provides this information on the ‘financials’ page on any company you are researching
- Make sure the company’s P/E ratio is below 20 – This is to ensure that you are not paying too high a price for a slice your large company
Plugging it all into ADVFN
If you do not have an account with ADVFN you can create one from this link.
Once you log into ADVFN, you will need to choose a screener from ‘charts and research’ drop down menu as shown in the picture below:
- UK screener – for UK stocks and shares
- US screener – for stocks and shares on NYSE, NASDAQ and AMEX
- CA screener – for Canadian stocks and shares
I have used ‘US screener’ for today’s post but whichever screener you choose, the method is the same.
The next screen you will be presented with is below.
Click Start Screener as shown:
The next screen will allow you to input 3 of the 5 criteria from The Relatively Unpopular Large company:
- Market cap over $10 billion
- P/E ratio less than 20
- P/E ratio at the lower end of or below its past average
The remaining 2 criteria of 1. making sure the company is unpopular and 2. making sure the share price has declined will require good old fashioned due diligence to ensure that the remaining criteria are met.
The benefit of a screener is to give you a short list to work from for this task.
Next, from the Deeper Analysis menu (US screener) as shown below choose the following:
- Current PE ratio
- P/E ratio 5 year average
- PE ratio as % of 5 year average
Don’t forget to save your screen and name it ‘The relatively Unpopular Large Company’ 🙂
From the Key Figures menu (US companies), choose market cap (mil).
Fine tuning Ben Graham’s criteria in ADVFN
The screenshot shows the parameters you now have. They need to be changed.
The red circle indicates where you need to click in order to only return companies on this screen that have a P/E ratio of 20 or less as required by Ben Graham’s stock market investing strategy.
Click Exclude PE-Ratio greater than, enter 20.01, then click submit.
Below are the two screenshots that show the values you need to enter for P/E ratio 5 Year average % and market cap:
The above screenshot shows 65% of the last 5 years average of the company’s P/E ratio. The % figure can be changed at your discretion.
This screenshot shows that you will exclude companies with a market cap of less than $10 billion and is the final variable you need enter for this screener.
Don’t forget to save your screener!
After all the plugging and tweaking, what you are left with is a list of large undervalued companies against which you
should will apply due diligence to ensure unpopularity and a decline of the share price.
For example, my list at today’s date has returned 290 US companies out of an initial list of over 16,000.
If you find that your list is too large (290 is manageable since only a few will ultimatly be worthy of investment), you have the option of raising the market cap to get rid of the smaller companies from this screen since Ben Graham’s focus was on large companies for his stock market strategy.
You can also lower the P/E ratio as a % of 5 year average below 65 or reduce the P/E ratio threshold from 20 to 18.
It really is up to you. But do use your discretion – you need to work from a large list and cast your net wide to find truely undervalued companies.
Stock market investing is definitely an art and a screener like this one will help you make it more of a science.
This has been a rather long post at just over 1000 words, but I wanted you to have a comprehensive instructional post to refer to when inputting Ben Graham’s stock market investing strategy into ADVFN.
I would really love it if you can tell me if you use the The Relatively Unpopular Large Company screener for stock market investing. Could be improved? How do you go about your due diligence or should this be the subject of another post?
Just leave a comment using the form at the end of this post 🙂
Thanks for reading the Shares and Stock Markets Blog and good luck with your investments.