This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stock Under $10 that he thinks could potentially double or triple in the next 6 to 12-months. See what he's trading today with a 14-day FREE pass.

What Would Ben Graham Do?

Stocks in this article: KTOSCVU

As I thought about the lessons of Graham, I wondered what a classic asset-based investor like him would be doing today. The market has been rising on a steady basis since the 2009 lows and is up double digits already this year. The value screens I run show fewer names worth considering most every week, and there are few opportunities to get money to work.

Notice that I said few, not none. I think if Graham were alive today, he'd have a team working on a few sectors of the market that have not done well. Fear of sequester and defense cuts have weighed heavily on many names in the defense sector. No one expects much from them and Wall Street could care less about most names.

This makes me want to dig deeper into small companies such as Kratos Defense & Security Solutions (KTOS). Most of its business comes from defense and homeland security contracts, and one expects conditions to be awful. The truth is actually opposite that as the company works on secure programs such as drones, cyber warfare and defense as well as transportation infrastructure protection. Funding for these projects is not going away and the company should prosper as it now wins new contracts almost weekly.

CPI Aerostructures (CVU) also appears vulnerable to cuts in defense spending, but dig deeper and you'll see its key military projects include a new helicopter and drone surveillance system that won't see any sharp spending cuts. It also has a growing business providing aircraft components to commercial aircraft manufacturers. The company had a record year in 2012, and business should be stable this year and begin growing at a healthy rate again in 2014.

The stock trades at a discount to tangible book value and at about the value of its net current assets. The fascinating part is that the bulk of its current assets are cash, receivables and money earned on contracts not yet billed. The money is owed by large defense and commercial aircraft manufacturers, so there is little chance of non-collection; it's as good as money in the bank. The stock trades for about seven times earnings and is a bargain by almost any measure.

There are not a lot of cheap stocks around, and I think Ben Graham would be as frustrated as those of us who utilize his approach are today. But there are bargains worth buying in sectors of the market that are out of favor and ignored.

At the time of publication, Melvin was long KTOS and CVU

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
DOW 16,614.81 +215.14 1.31%
S&P 500 1,941.28 +37.27 1.96%
NASDAQ 4,419.4780 +103.4040 2.40%

Our Tweets

Brokerage Partners

Top Rated Stocks Top Rated Funds Top Rated ETFs