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Number Cruncher

Safe and cheap: Graham would have approved Add to ...

What are we looking for?

Canadian stocks that Benjamin Graham, the famed father of value investing, would have liked.

More about today's screen

Mr. Graham developed his approach to investing during the Great Depression when he searched for stocks that offered a wide margin of safety against possible loss. While his philosophy has spawned many stock screens in the decades since then, all of them concentrate on buying stocks that look both cheap and safe.

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John Dorfman, a U.S. money manager who writes for Bloomberg News, is a fan of a simplified Graham-style screen that searches for stocks that are selling for under 12 times earnings and less than book value while having debt that is less than half of equity. The first two criteria provide a gauge of cheapness; the last one offers a measure of how safe a company is.

We applied Mr. Dorfman's approach to stocks trading on the Toronto Stock Exchange. In addition to the other criteria, we also insisted that companies must have market capitalizations of more than $100-million, on the theory that a bit of size provides a company with extra safety in the event of turmoil.

What we found

A list of 11 stocks that look both relatively cheap and relatively safe. The airline industry figures prominently on our list, with both ACE Aviation and Chorus Aviation putting in appearances, but our roster of Graham-style investments also spans restaurant chains, publishing companies and medical-supply distributors.

Many of the companies on our list operate in unglamorous, utilitarian industries. A good example is Algoma Central Corp., which operates a fleet of cargo vessels and petroleum tankers on the Great Lakes. Another is Goodfellow Inc., which distributes and remanufactures sawn timber, lumber, flooring and wood panels. Yet another is Futuremed Healthcare Products which supplies incontinence products, patient beds and other gear to nursing homes.

Goodfellow is the smallest company on our list by market cap. The largest company is Dorel Industries Inc., which makes ready-to-assemble furniture, car seats, strollers cribs and high chairs.

 
  • ACE.A-T
  • CHR.B-T
  • ALC-T
  • GDL-T
  • FMD-T
  • DII.B-T
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