7 Mid-Cap Stocks for Graham Enterprising Investor, Oct 2024
Graham Enterprising screen focuses on quality, debt, current ratio, earnings trend, book multiples and p/e ratios and existence of a dividend
You may know about the Graham Number screen, which simplifies stock selection based on two numbers: Book Value and Earnings per Share. The Graham Enterprising screener expands on the concept and takes additional attributes into account. For example, it requires the companies to exhibit a growing earnings trend, have debt/current assets and current ratio within certain limits, and require shareholder friendliness by insisting on a dividend. This is in addition to the traditional p/e and p/b ratio qualifiers.
The idea is to find quality companies with good businesses at fair prices.
For this screen, we have restricted our universe to mid-cap stocks trading in the US. For us, this implies a market capitalization between $2 B and $5 B.
Here are the screener results (please click to expand the table and get the full data)
Please note that you should consider any screener results as a shortlist of stocks that you can dive deeper into. These are intended to give you a smaller set to work with by reducing your selection universe into a manageable number.
Let’s take a brief look at each of these stocks.
Atkore: ATKR 0.00%↑ Atkore Inc is a diversified industrials company and a manufacturer of electrical, mechanical, and safety infrastructure solutions.
A fairly boring business with high net margins of 16.5% and low p/e of 5.9. While the company had solid EPS growth in the last 5 years, the recent 1 year EPS growth is -17.4%. The stock price has declined 44% in the last one year. If the recent earnings problems are temporary, this could be an attractive investment. I will definitely take this for a deep dive.
Century Communities: CCS 0.00%↑ is a homebuilder building single-family homes and providing financing options for the purchasers. At a low 10.1 p/e and 1.3 p/b, with an expected EPS growth next year of over 30%, I see nothing of concern in its fundamentals at the first pass. The residential real-estate market has been frozen in the past few years but the company has been able to show some growth. Another one for further review.
Greif: GEF 0.00%↑ Greif Inc is a producer of industrial packaging products and services with manufacturing facilities located in many countries.
It has a good 3.5% dividend yield and has grown its dividend for 1, 3 and 5 years at a middling single-digit rate. Every other metric appears to be middle of the road with nothing calling out as undervalued. For value investors, I would say avoid - there are better candidates in the market.
Harley-Davidson: HOG 0.00%↑ An iconic motorcycle brand. With an Altman-Z score of 1.5 (TTM) the company has a high probability of going bankrupt in the next 2 years. Avoid. For instance, there debt to equity ratio is 2.2 which is very high.
Seabord: SEB 0.00%↑ Seaboard Corp is a diversified group of companies that operate in agricultural and ocean transport businesses. The company operates at a very low margin and in commodity businesses and I fail to see any competitive advantage in its businesses. Avoid.
Terex: TEX 0.00%↑ Terex is a top manufacturer of aerial work platforms, materials processing equipment, and specialty equipment, such as material handlers, cranes, and concrete mixer trucks. The fundamentals are strong and the valuation is light so if you are inclined to add more industrials to your portfolio, this could be a great stock to research. I am not moving forward on this as while the valuation looks fairly undervalued, it does not rise to the “compelling” category.
Tegna: TGNA 0.00%↑ Tegna was spun off from Gannett in 2015 keeping all the digital and broadcasting assets. I have flirted with Gannett off and on and Tegna with its P/E ratio of 6.3, p/b of 0.9 and a forward PEG of 0.4 certainly looks attractive. It has good ratios, healthy margins and a solid growing dividend yielding 3.2% today with a mere 19% payout ratio. And this is an election year when media companies do very well. The debt/equity is a tad high at 1.1. I am on the fence with this one, but will add it to my review list.
Out of the 7 stocks we discovered, I will be looking at 3 stocks ATKR, CCS and TGNA for further review. Once reviewed, my results will be posted in the paid member area. You should take these as a starting point for your own review if you are not a paid member yet.