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

To: Brian Sullivan who wrote (46134)	1/8/2012 8:33:50 PM
From: E_K_S	Read Replies (1) \| Respond to of 78704

Hi Brian - Lowe's Companies Inc. (LOW) is a bit better than that for HD. Stock Graham # Current Price % Over Valued ---------------------------------------------------------------------------------------- HD $24.53 $43.20 75% LOW $20.28 $26.34 30% If you use Analysts 2012 earnings estimate of $1.78/share LOW $23.11 $26.34 14% According to Graham, Lowe's is still overvalued but by far less than HD. Even with next year's earnings Graham would consider Lowe's overvalued by 14%. In the group of retail companies I posted it is one of the better values but still not a bargain. Through the GN screen, I am hoping to find a quick and dirty way to identify companies that currently are selling w/ a low historical PE and good BV (that has been growing) without going too deep into each of the company's financials. This type of screen does flag potential candidate stocks mainly because some are selling at historically low PE's (ie WAG). Check out the chart posted today on the Dividend Investing thread: Message 27867872 The chart shows "Normal" 15 year PE's for several stocks. When the Graham No. shows a good valuation candidate, most of the time the stock is selling significantly below it's 15 year "Normal" PE. I have not calculated the Graham No. for the stocks listed in this chart, but I bet there are several selling below the fair value the Graham No. calculates. Rising Future Interest Rates impact "fair" values --------------------------------------------------------------------- Realistically, the 22.5 factor used in the Graham calculation should actually be higher to represent the historically low interest rate environment. According to Paul Senior, the factor s/d be more around 30 (assuming that the BV constraint of <= 1.5 is maintained) which represents the long term AA bond rate of 5%. This of course, raises the acceptable PE constraint to 20. From an earlier post by Paul Senior:"... the AA bond rate is 5%, that the earnings yield should be no more than that also. (Reference p. 186). Earnings yield being earning/price or reciprocal of the p/e. So p/e to be paid should be no more than 20 in a 5% AA bond environment. (1/20 =.05 = 5%)..." Therefore, there are a lot of moving parts in this calculation. I hope that a favorable GN now will alert me to a historically favorable market value especially when long term interest rates are so low and are bound to move higher in the coming months and/or years (ie reversion to mean idea). That's my newest concern . . . a rising interest rate environment. EKS