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5 Value Stocks Ben Graham Would Love

Posted: Nov 24, 2008 11:45 AM by Will Ashworth

Tickers in this Article: CYNO, MOV, MAXY, JCTCF, GENC

Buying stocks cheap is much easier these days, given the S&P 500 is down 46% year-to-date. However, if you want to buy stocks really cheap, you need to do a lot of homework and a little calculating. In his book "The Intelligent Investor", Ben Graham used net current asset value (NCAV) to unearth some deep values. He considered any stock trading at two-thirds or less the NCAV to be a good buy. The equation itself is current assets less total liabilities divided by number of shares outstanding. While not easy, I've selected five stocks that meet Mr. Graham's criteria and are profitable. (To learn more about Ben Graham, read The Intelligent Investor: Benjamin Graham and our Greatest Investors Tutorial.)

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Movado Group (NYSE:MOV)
I'm someone who spends a lot of time studying consumer discretionary stocks and this is one of my favorites. I don't currently own it but have in the past. The New Jersey-based watchmaker is having an off year in 2008 (most are), but it's still making decent money. Revenue for the first six months of the year was $231 million, down $9.8 million from $240.8 million a year earlier. Excluding excess discontinued merchandise, sales were actually up 0.5%. In terms of adjusted operating profits, they were $14.7 million, down from $19.1 million for the first six months in 2008. You never want to see lower numbers but, Movado is still projecting 2009 full-year earnings per share of $1.65-1.71. That's a forward P/E of 6.5 with a NCAV of $12.78. In the middle of an expense reduction program, 2010 looks to be more promising.

Cynosure (Nasdaq:CYNO)
Cynosure provides aesthetic treatment systems for non-invasive and minimally invasive procedures for treating hair removal and other skin conditions. Revenue for the first nine months increased 30% to $114.2 million, up from $87.7 million the year before. Income from operations was up $4.68 million or 36% to $17.62 million. The third quarter profit, while down slightly, was its eighth consecutive quarter in the black. In the Q3 press release, management did indicate the aesthetic business is slowing due to the worldwide slowdown. International sales increased 29% in the third quarter, with revenue generated in seven countries including Mexico, China and Japan. With no long-term debt and $93 million in cash, Cynosure is prepared for the coming months, which promise to be difficult. Its current NCAV is $8.71, which is 115% of its stock price.

Gencor Industries (Nasdaq:GENC)
Gencor manufactures heavy equipment for several industries including the construction industry. Revenue for the first nine months of the year was up $6.8 million to $66.8 million with operating income down slightly to $5.6 million from $6.3 million the year before. Operating margins have been affected by high steel and energy prices. Those should moderate in 2009 as commodity prices drop. Its stock is trading at 20% of its 52-week high, 68% of its NCAV and less than its cash on hand. This might be the value of the bunch.

Jewett-Cameron Trading (Nasdaq:JCTCF)
The Oregon-based distributor of wood and specialty metal products had a decent year in terms of revenue and a banner year for net income. Revenue was $64.3 million, down $4.7 million from $69 million last year. Meanwhile earnings per share came in at $1.09, up 13.5% from 96 cents per share the year before. With only $2.3 million in long-term debt and $5.8 million in cash, Jewett-Cameron is ready to handle the oncoming economic turbulence. Its NCAV is $5.96, approximately $1 higher than its stock price.

Maxygen (Nasdaq:MAXY)
Biotechnology companies aren't my specialty and I rarely write about them; however, the value proposition in this instance overcame my aversion. In the third quarter, Maxygen sold its Factor VII program (dealing with coagulation proteins) to Bayer Healthcare for $120 million, with $90 million in cash now and another $30 million down the road when phase II clinical trials take place. Without the cash, the year-to-date loss was still was lower than in the previous year. This is a business about developing new and better protein drugs. Its profits come when these drugs are sold to bigger healthcare companies like Bayer. With a NCAV of $5.26 and cash-per-share that's even higher, there is very little risk at this price.

Bottom Line
Do your homework on each of these companies. I think you'll find that in the long-term, none of them will cost you dearly. At this point in time that's all you can ask for.

For more on long-term investment strategies, read Choosing Between Dollar-Cost And Value Averaging.

By Will Ashworth

Will Ashworth lives and works in Toronto, Canada. He's worked in and around the financial services industry for much of his adult life. He loves investing and is passionate about helping others learn how to put their money to work.

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