Re: Modified Graham Number candidate stocks
TRN is a GN play I started buying at $17.5/share in 5/2016. This was more of a hybrid GN in that they did have one year of negative EPS over the last 10 years.
I also have been buying CenturyLink, Inc. (CTL), Domtar Corporation (UFS) and Ampco-Pittsburgh Corp. (AP), all are 'modified' GN candidate value Buys.
CenturyLink, Inc. (CTL); GN value $38.19/share
started Buying 7/2016 @ $30.00/share
4 Buys in 8/2016 @ $29.30/share
Domtar Corporation (UFS); GN value $ 53.49/share
started Buying 9/2016 @ $36.50/share
Ampco-Pittsburgh Corp. (AP); GN value $37.31/share
started buying 9/2015 @ $11.30/share (sold 80% of those shares 4/2016 @ $17.50/share)
added shares 12/2015 $ 9/2016 @ $9.95/share
Trinity Industries Inc. (TRN); GN value $ $ 35.07/share
started Buying 5/2016 @ $17.50/share
FreightCar America Inc. (RAIL); GN value $16.79/share
started Buying in 8/2016 @ $13.58/share
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Other GN Buys buys in 2014/2015
(Note: This was a modified GN candidate as they reported 2 quarters of losses over last 10 years)
Sterling Construction Co. Inc. (STRL); GN fair value $3.99/share
started Buying late 2014 through 2/2015 @ $2.75/share
closed out 95% of the position at avg $6.50/share; still hold 200 shares; stock hit multi year high today @ $8.03/share.
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I use this Graham Number Calculator but will also include candidate Buys that may have booked 1 year of losses over the last 10 years. I may also drill down the financials to see evaluate BV assets to include and/or exclude intangible and/or significantly undervalued assets (like real estate valued at cost rather than market). Same w/ other types of assets.
I will also look at management and new management to see if they have insider ownership and/or if there are activist investor ownership (M. Gabelli is a 10% owner of AP). Many of these companies are in cyclical industries but remember you are buying based on the asset value(s). When the sector becomes profitable and FCF increases substantially, then you must sell if/when GN fair value is reached.
There is never the best opportunity Buy candidate, all will have warts but you must have conviction that you are buying quality assets undervalued. You must also have a good experienced management team that can maximize the FCF if/when revenues turn up and/or lock in profitable long term contracts (like STRL has done in the last 18 months).
Finally, these value plays take time to turn around and Graham usually will give them no more than 18 months. Some take longer if they are deep cyclical plays but that amount of time s/d be sufficient.
I look at the new 52wk lows, then run them through my Graham Number value calculator (every day, every week, every month, year). That's how I glean the different sectors. There is/are some news events for the sector and or individual company that start the erosion of value until everybody throw in the towel. You begin to see value investors (and activist investors) accumulate shares. Be patient and spread out your Buys over a 90 day period. Grahmn generally always just bought his entire position once his criteria was met but w/ my modified GN value, I typically see good values become better ones and then the dreaded 'value trap'. You must learn to avoid the value trap and just exit that position and move on. They happen and I have some scars for those I rode out (like SVU).
You will buy some loser but I have had good success picking up good candidate stocks w/ good risk/reward profiles. I have grown my portfolio to the point where I will have 5-6 GN value plays at different stages in their fair value cycle. These investments still only represent at most 30% of my portfolio as I never bet the house on any one investment thesis but only build to a 2% portfolio position. If/when they reach fair value, my 2% portfolio position may become a 4% portfolio position. My exist strategy is to peel off my high price shares at/near the GN fair value target price and then completely exit the position at 10% or high from the GN fair value price.
FWIW, I do post most/all of my modified GN value Buys/Sells and reasons why I like the company included assets owned and management changes. I have been wrong in the past and will be wrong in the future but have had good success w/ this style of value investing.
Good Investing
EKS |
