Graham advocated buying a diversified group of stocks selling
below their Net Current Asset Value.
Sometimes you will see what appears to be a pristine balance sheet of a company trading
below net current asset value, but then come to find out that they have enormous long term lease commitments which — in my view — should be put on the balance sheet as a liability.
However, not many companies are selling
below their Net Current Asset Values.
As we pointed out in our earlier post, Jonathan Heller of Cheap Stocks - fame mentioned it back in October 2005 in a list of the Top 20 Market Cap Companies Trading
Below Net Current Asset Value.
Jonathan Heller of Cheap Stocks - fame mentioned it back in October 2005 in a list of the Top 20 Market Cap Companies Trading
Below Net Current Asset Value.
You will never find a good company trading
below net current asset value because these insanely cheap valuations are the result of small size and business problems.
Previously, Graham and Rea looked for companies with stock prices
below their net current asset value.
So A&P had a P / E based on avg 5 year earnings of about 6, and it traded
below net current assets (which were largely liquid).
Not exact matches
The implementation of Grahams approach was performed pretty simply: Annually on Dezember 31, stocks trading
below 0.75 times
net current asset value (NCAV) were selected and a diversified portfolio was constructed.
The fifth criterion Graham and Rea used called for the stock price to be
below the company's per share
net current asset value NCAV or «
net quick»
asset value.
G&D point to the attraction of acquiring common stocks at prices
below liquidating value, especially prices
below net,
net current assets.
With Webco trading at 60 % of
net current asset value the company is trading
below the famous 66 % number that Benjamin Graham popularized as a threshold for buying cheap value stocks.
Deep Value: John focuses on Benjamin Graham's
net nets: those companies that are offered at a price
below the value of its
current assets after all liabilities have been honored.
even when a company has little ongoing business value, investors who buy at a price
below net -
net working capital are protected by the approximate liquidation value of
current assets alone.
We are encouraged that investors have rediscovered the stock and are sitting tight believing the company is worth more than
current valuation: only 7X earnings per share (EPS), 4.5 X cash flow, and well
below our estimate of
net asset value.