Benjamin Graham, considered by many to be the architect of fundamental analysis, described a strategy for identifying deep value stocks, which in his view are low-risk candidates, in his book, ?The Intelligent Investor,? published in 1949.
Graham?s strategy, dubbed the ?net current asset value? approach, apparently works very well. One research study, covering the years 1970 through 1983 showed that portfolios picked at the beginning of each year, and held for one year, returned 29.4 percent, on average, over the 13-year period, compared to 11.5 percent for the S&P 500 Index. Other studies of Graham?s strategy produced similar results.
Despite the impressive results, Graham?s net current asset value (NCAV) approach is relatively unknown to individual investors. That?s probably because finding stocks meeting Graham?s requirements requires some digging. No Web site provides tools to screen for NCAV stocks.
However, it?s not hard, and anyone willing to devote a couple of hours to the task should be able to come up with a few candidates. Here are my ideas for finding NCAV stocks.
Graham's Value Strategy
Graham?s NCAV strategy calls for buying stocks trading below their calculated value. Many value stock selection strategies can be described similarly. What?s different is how Graham determines value.
Book value is a firm?s assets minus its liabilities. Graham does the same calculation, but only includes current assets (cash, inventories, and accounts receivables) in the computation. He ignores long-term assets such as buildings, equipment, patents, and the like. However, he still counts all liabilities including short- and long-term debt, and everything else that appears in the liabilities column of the balance sheet.
Thus, net current asset value is current assets minus total liabilities. Graham?s NCAV strategy calls for buying stocks trading at two-thirds or less of their net current asset value. To find the per share NCAV you must take the NCAV and divide it by the number of shares outstanding.
That?s a stringent requirement, since most companies have negative NCAVs. But Graham was looking for firms trading so cheap that there was little danger of falling further. His strategy calls for selling when a firm?s share price trades up to its NCAV.
Finding Graham's Value Stocks
According to Graham, some of the companies meeting his NCAV criteria could end up failing, so he recommended buying a large number of stocks to diversify the risk.

See the authors website and screening details by following the link below.

Posted by: --gpowell

View this poster's website: http://www.winninginvesting.com/net_asset_value.htm