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Benjamin Graham is widely considered as the father of modern value investing. Warren Buffett states that Graham is the second most influential person in his life after his father. In his classic, The Intelligent Investor, Graham suggests that an enterprising investor should consider purchasing a diversified portfolio of “bargain stocks”. Bargain stocks can be purchased at a cost less than their net current asset value (NCAV), i.e. their current assets less their total liabilities and counting as zero fixed and other assets. Graham’s own fund, the Graham Newman Corporation maintained a portfolio of at least 100 such stocks purchased at two thirds or less of their NCAV and obtained a very favourable return for over 30 years with this strategy.

Using the website Graham Investor and Yahoo! Finance, I have discovered five such “bargain stocks” using slightly modified criteria than the one recommended by Graham in his classic. The criteria are as described below.

1. The price of the stock is at most three quarters of their net current asset value.

2. Market capitalization of at least $200m

3. Profitable on net income & EBITDA basis

4. Positive operating cash flow

5. Moderate Price/Book ratio of less than 1.5

Company

Price

Net Current Asset Value Per Share (NCAV)

Price/NCAV

Price/Book

EPS

Operating Cash Flow Per Share

1 Year Target Price

AVX Corp. (AVX)

$14.63

$27.45

53.30%

1.22

$1.43

$0.89

$18.00

Systemax Inc. Common Stock (SYX)

$16.05

$26.50

60.57%

1.39

$1.17

$2.58

$20.00

China Fire & Security Group Inc. (CFSG)

$8.31

$13.74

60.48%

1.75

$0.46

$0.13

$9.00

Lihua International Inc. (LIWA)

$7.37

$11.44

64.42%

1.32

$1.41

$0.72

$18.67

PC Connection Inc. (PCCC)

$7.98

$10.66

74.86%

0.82

$0.93

$0.54

$11.00

AVX Corp. (AVX): AVX Corp. Manufactures and supplies passive electronic components and interconnect products worldwide. It has a market capitalization of $2.49B, a 10-month trailing P/E of 10 and average daily trading volume of around 200K shares. The stock has a one year target of $18.00, a solid 23% premium to its most recent price.

Systemax Inc. Common Stock (SYX): Systemax Inc. operates as a retailer of various brand name and private label products including personal computers, consumer electronics technology supplies through branded e-commerce websites, catalogs and retail stores in North America and Europe. Its portfolio includes brand names such as CompUSA and TigerDirect.com. It has a market capitalization of $591M, a 10-month trailing P/E of 13 and average daily trading volume of around 69K shares. The stock has a one year target of $20, a solid 25% premium to its current price.

China Fire & Security Group Inc. (CFSG): China Fire & Safety Group Inc. engages in design, development, manufacture and sale of various fire safety products in China. The company was founded in 1995 and is headquartered in Beijing. The company has a market capitalization of $231M, a 10 month trailing P/E of 18 and average daily trading volume of 226K shares. The stock has a one year target of $9, a 8.3% premium to its current price.

Lihua International Inc. (LIWA): Lihua International, Inc. engages in production of copper replacement cable and wire products in China. The company is headquarted in Danyang City in China and has a market capitalization of $222M. It has a 10-month trailing P/E of 5 and average daily trading volume of 210K shares. Lihua International has a one year target of $18.67 with a whopping 153% expected return.

PC Connection Inc. (PCCC): PC Connection, Inc. operates as a direct marketer of various information technology solutions such as software, peripherals, printers, and other products through its websites such as pcconnection.com. The company has a market capitalization of $212M, a trailing 10-month P/E of 8.5 with an average daily trading volume of 56K shares. Analysts have set one year target price on its shares at $11, an impressive 37% premium over its current price.

These five stocks are a good starting point for the Graham’s enterprising investor to build a diversified portfolio of such “bargain stocks”.

These are not a list of recommended buys and the investors must do their own due diligence before buying or selling any stocks.

Source: 5 Benjamin Graham Bargain Stocks