Written by Summary
Recent sell-off created a rare entry window for value investors in a secularly expensive market.
Here we pick the 10 most beaten-down stocks based on a Graham-type screening, and you would be impressed by the depth and breadth of the sell-off.
So many good stocks (some excellent ones) are valued in the single-digit PE range, offering an excellent balance of diversification and outsized return potentials.
The top one that fits the Graham criteria is Ford Motor – with all its impressive lineup such as Mach-E and F-150 lightning – for sale at 4.1x of operating cash flow.
The second top one is Alibaba – a good setup for a long call option play considering its extremely compressed valuation and the wide variance of possible scenarios in the near future.
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Marina113/iStock Editorial via Getty Images Thesis and overview
In the stock market bible, The Intelligent Investor, Benjamin Graham suggested a set of criteria for stock selection. These timeless criteria have helped and inspired millions of investors worldwide. These criteria turned buying stocks from a speculation into an investment.
However, the dream deals that fit all his original criteria have become almost extinct now (e.g., stock price below 2/3 of tangible book value per share, stock price below 2/3 of Net Current Asset Value, et al). However, from time to time, extreme market panics offer a rare entry window to pick stocks close to these dream criteria.
As you will see in the table below, now is one such time. So many good stocks (some excellent ones such as Goldman Sachs and T Rowe Price) are valued in the single-digit PE range, across a broad range of market caps (mega, large, medium, and small), and across a wide range of sectors. It is really a rare window to better diversify and strengthen our portfolios. Finally, note that all the prices were taken on Mar 11 before the market opened. Given the current market volatility, these numbers can change quite a bit from day to day. Author This article is a bit on the long end of our usual writings as we do want to provide adequate coverage on each one of them. So here let me start with an outline and some highlights of the selections so you could decide which sections to read and which ones to skip. We will first describe our screening method and its risks upfront before we promote the strength of value investing.
We then will describe two of the top pics in detail – Ford Motor ( F ) and Alibaba Group ( BABA ).
You will see that F made it to the top of the list for good reasons. In the near term, it enjoys diversified revenue sources from traditional, hybrid, and electric vehicle offerings, especially during a period of high fuel prices like this time. It is also well-poised for future growth with all its impressive lineup such as Mach-E and F-150 lightning. Yet it is for sale at 4.1x of operating cash flow.
There is little surprise or a lot of surprise – depending on your point of view – that BABA made it to the second spot. It is not surprising because you all know how beaten-down it is. And it is surprising in the sense that BABA has become a deep-value stock for sale at 8.4x pre-tax earnings when adjusted for cash positions. It has become a good setup for a long call option play considering its extremely compressed valuation, a wide variance of possible scenarios in the near future, and also relatively low implied volatility.
After that, we will share our views more briefly on the rest of the 8 picks. Particularly, we want to highlight the following three – Moderna ( MRNA ), Goldman Sachs ( GS ), and Atlas Air Worldwide Holdings, Inc ( AAWW ).
MRNA – its bubble has burst. And at about 7.3x PE (compared to about 20x PE peak in 2021 and infinity in 2020), it has become attractive considering that the demand for its COVID vaccine could still persist, and its mRNA technology could be used to create a new class of medicines beyond fighting COVID.
GS has become cheap not only in terms of profit but also in terms of asset/income purchases.
AAWW – the ongoing Russia/Ukraine conflict is adding more disturbance to the global shipping and rates could triple […]
Written by Summary