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Ben Graham's Tips on How to Find Bargain Stocks

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  • (1:15) - Value Investing Advice From Benjamin Graham
  • (12:00) - Stock Screener Criteria
  • (15:45) - Tracey's Top Stock Picks
  • (31:15) - Episode Roundup: CCL, ATH, FANG, CRRFY, FCX

Welcome to Episode #160 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

This week she continues her series of podcasts covering Benjamin Graham’s best-selling book for value investors called “The Intelligent Investor.”

First published in 1949, the last edition by Graham was published in 1973. But in 2003, Jason Zweig, along with a preface by Warren Buffett, updated the book to account for the events of the last 40 years.

If you have the time, you should take a deep dive into the book. Ben Graham’s tips for finding stocks in the 1940s, 50s, and 60s are still highly relevant in 2019.

Tips for Finding Bargain Stocks

How do investors seize the opportunity and find the best cheap stocks?

Graham tells investors to look for a bargain condition which can mean

1.       That the company just reported disappointing results, and

2.       It suffers from protracted neglect or unpopularity.

There are plenty of these companies right now on the stock exchanges.

How do investors narrow it down?

Screening for Bargain Stocks

Graham suggests looking for stocks that are trading at 52-week lows, which would indicate they were unpopular, as well stocks selling for less than net value of net working capital.

To increase the number of stock ideas, you can screen for both mid and large cap stocks, trading at 52-week lows, with a price-to-book ratio under 1.0.

That’s a really low P/B ratio which should get you some deep value.

This screen returned just 20 stocks.

What was on the list? Lots of commodities plays, not surprisingly as many of the energy stocks, which are hated on the Street, are hitting new lows again.

5 Bargain Stocks Trading Near 52-Week Lows

1.       Carnival Corp. (CCL - Free Report) , the cruise ship operator, recently cut its earnings guidance for the year, again, which has pushed the stock down to new lows. Shares have fallen 17.8% year-to-date. Analysts have been cutting estimates for this year and next too. But shares are cheap with a P/E of just 9.4. It pays a dividend yielding 5%.

2.       Athene Holding ATH is a leader provider of retirement savings products like annuities. Year-to-date, the shares are down 4.8%. With a price-to-book ratio of just 0.6 and a PEG of 0.4, it has the rare combination of growth and value.

3.       Diamondback Energy FANG is one of the top energy producers in the Permian Basin. Year-to-date, shares have fallen 12.4%, much of it coming after the President and COO abruptly resigned from the company for personal reasons. Could this be a buying opportunity? The PEG ratio is 0.4 as it’s expected to grow earnings by 19% this year.

4.       Carrefour SA CRRFY is a large French grocer which has operations throughout Europe and Latin America, especially Brazil. It has a $13 billion market cap and pays a dividend yielding 3%. Shares have fallen 16.3% in just the last 3 months. It now sports a forward P/E of 12.

5.       Freeport McMoran FCX is a copper and gold miner with a market cap of $12.4 billion. Investors have fled the copper miners this year on global recession fears. Freeport now has a price-to-book ratio of just 0.7. It also pays a dividend currently yielding 2.4%.

What else should you know about finding bargain stocks?

Tune into this week’s podcast to find out.

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