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What Would Ben Graham Buy?

NEW YORK ( TheStreet) -- One of my early columns focused on identifying companies that the father of value investing and one of my investment heroes, Ben Graham, might be looking at if he were still alive and managing money.

The criteria for this search were based Graham's technique of identifying stocks for the "Defensive Investor," which he described in the his must-read book, "Intelligent Investor."

While I have modified Graham's criteria slightly, the principles and objectives are still the same:

1. Adequate Size: Graham excluded smaller companies; I've set the minimum market cap at $1 billion.

2. Strong Financial Condition: Minimum current ratio of 2; long-term debt must be less than working capital.

3. Earnings Stability: Graham required positive earnings for at least 10 consecutive years: I am using seven years.

4. Dividends: Graham required "uninterrupted" dividends for at least 20 years; I am using seven years here as well.

5. Earnings Growth: Graham sought a minimum increase of 33% in earnings per share in the past 10 years; I am using a minimum compounded annual growth rate in earnings of 5% over seven years.

6. Moderate Price Earnings Ratio: Average PE ratios should be less than 15 over the past three years

7. Moderate Ratio of Price to Assets: Graham sought companies with price to book ratios below 1.5 but would accept a higher PE ratio, if price to book was lower. This end result was that PE times Price to Book ratio should be less than 22.5.

8. Other: U.S. companies only; I excluded foreign companies and American Depository Receipts from the results.

The last time I ran this search in February there were just two names, Intel (INTC - Get Report) and Cash America (CSH). Now there are five. While Intel does not make the cut this time, Cash America is a holdover.

The oil and gas industries are well represented with petroleum refiner HollyFrontier (HFC - Get Report) and contract driller Helmerich & Payne (HP - Get Report). The latter is a name that I've seen on several different value-related screens in recent years, and it currently trades for 10.5 times trailing earnings. Back in December, the company recently increased its quarterly dividend more than 100% from 7 cents to 15 cents. There is also CF Industries (CF - Get Report).
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CF $49.04 4.10%
CSH $27.83 5.22%
HFC $51.29 1.46%
INTC $31.21 2.29%
HP $51.81 5.13%


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