Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (46067)	12/28/2011 8:30:55 PM
From: Paul Senior	Respond to of 78753

On that list NIHD. Fwiw, I started a small buy a couple days ago. Generally rising p/stated bv., low p/stated bv. Stock near 12-mo low. Otoh, roe and profit margins have been decreasing over past few years. No div, whereas it seems to me most telecoms do have dividends. Not so sure I can call it a value stock at current price. Reversion-to-mean play for me.

To: E_K_S who wrote (46067)	12/29/2011 12:38:55 PM
From: NikhilJog	Respond to of 78753

EKS - this is good! thanks...

To: E_K_S who wrote (46067)	12/29/2011 9:38:24 PM
From: E_K_S	Read Replies (1) \| Respond to of 78753

More on Graham's Number I was trying to figure out how he derived "22.5" in his valuation formula. Here is a pretty good explanation The Graham Number dividends4life.com From the article: "..The 22.5 is a little more involved. Graham believed that the price-to-earnings ratio (P/E) should be no more than 15 and the price-to-book value ratio (P/B) should be no more than 1.5. He did note that a P/E ratio below 15 could possibly justify a higher P/B ratio. Thus, he used as a general rule of thumb that the product of the two should not be more than 22.5 (15 x 1.5). That is how the 22.5 is derived (15 x 1.5). The 15 P/E is a result of Graham wanting his portfolio to have a yield equal yield to that of a AA bond. Over long periods of time, AA bonds have yielded 7.5%, on average. The inverse of this yield is 1 divided by 7.5%, or 13.3 (rounded up to 15) became the target P/E ratio for his portfolio...." ----------------------------------------------------------------------- It's an easy number to calculate and should provide a good sell target number. His number is weighted for more normalized interest rates @ 7.5%. Therefore, one could make the argument that the 22.5 factor could be as high as 30 which would reflect an AA bond interest rate of 5%. A higher factor like 30 (reflecting a lower AA bond rate like 5%) results in a higher fair value price. When I calculated Graham's number for COP I get the following results: You can get BV here: finance.yahoo.com You can get Earnings here: finance.yahoo.com If you want to look at next year earnings and/or analysts estimates look here: finance.yahoo.com (Note: for COP 2012 Earnings are $8.42 avg for 21 analysts) Using a 22.5 factor = Graham's No. $ 93.00 Using a 30.0 factor = Graham's No. $107.00 Current share price: $ 72.87 Using Next Year Analysts Estimates of $ 8.42/share: Using a 22.5 factor = Graham's No. $ 96.90 Using a 30.0 factor = Graham's No. $111.80 My take away from this is with the unusual low interest rate environment, fair value for most of these Graham stocks (PE<15 Price/BV <= 1.5), a high Factor s/d be used resulting in a higher fair value "Sell" target. Some of my sample calculations show that up to another 15% in price would reflect a fair value price. I guess I need to let those prices run a bit higher. EKS