Seeking Alpha
Recommended for you:
Profile| Send Message|
( followers)  

We continue to experience market volatility and low interest rates that provide a challenging environment for those looking for growth and income from their stock portfolio. I recently reviewed 6 Stocks Under $10 Undervalued By Graham With Quarterly Gains which uses the Graham number to search for value stocks. In the end, I wasn't impressed by the combination of being under value yet with recent growth -- mainly because the stock selection was of small cap stocks which are more volatile. However, I like the notion of underpriced but fundamentally strong stocks.

Danny Guttridge from Kapitall Research uses the same approach -- the Graham number but looks for stocks trading near their highs. What I like about this selection is that we get some large cap stocks that I think will be important to reduce volatility.

Danny's list of five are:

  • Chubb (NYSE:CB): Provides property and casualty insurance to businesses and individuals.
    • Market cap $19.46B
    • Graham Number/Closing Price 121%
    • 47 years of increasing dividends
  • Allstate (NYSE:ALL): Engages in the personal property and casualty insurance, life insurance, retirement, and investment products.
    • Market cap $16.43B
    • Graham Number/Closing Price 123%
    • 19 years of dividends but dropped in 2009
  • CenterPoint Energy (NYSE:CNP): Operates as a public utility holding company in the United States.
    • Market cap $8.56B
    • Graham Number/Closing Price 129%
    • 7 years of increasing dividends
  • W.R. Berkley (NYSE:WRB): Operates as commercial lines writers in the property casualty insurance business primarily
    • Market cap $5.93B
    • Graham Number/Closing Price 117%
    • 7 years of increasing dividends
  • BOK Financial (NASDAQ:BOKF): A financial holding company, offers a range of financial products and services
    • Market cap $3.87B
    • Graham Number/Closing Price 116%
    • 7 years of increasing dividends

I like the idea of large, stable companies that are trading under their fair market value. Of course it's important to make sure that they aren't on the way out but the larger companies are less likely to fall foul of that problem (not that it's impossible).

In addition, they all have dividends and four of them have been increasing the amounts. Allstate failed to do that in 2009 and are really starting again but with a long history of producing dividends.

So, I like the size of the companies, I like the fact that they produce dividends and I like the fact that they are value selections.

I also created the ratio of Graham Price/Current Price to give a sense of which ones were the best value. The list is ranked by market cap but it is also interesting to review the value ratio.

We will benchmark this against our dividend bearing ETF portfolio. As an additional comparison, I am going to add the 6 Stocks under $10 with the low Graham numbers.

AssetFund in this portfolio
REAL ESTATE(NYSEARCA:ICF) iShares Cohen & Steers Realty Majors
CASHCASH
FIXED INCOME(NYSEARCA:TIP) iShares Barclays TIPS Bond
Emerging Market(NYSEARCA:VWO) Vanguard Emerging Markets Stock ETF
US EQUITY(NYSEARCA:DVY) iShares Dow Jones Select Dividend Index
US EQUITY(NYSEARCA:VIG) Vanguard Dividend Appreciation ETF
INTERNATIONAL EQUITY(NYSEARCA:IDV) iShares Dow Jones Intl Select Div Idx
High Yield Bond(NYSEARCA:HYG) iShares iBoxx $ High Yield Corporate Bd
INTERNATIONAL BONDS(NYSEARCA:EMB) iShares JPMorgan USD Emerg Markets Bond
  • 6 Stocks Under $10 Undervalued By Graham With Quarterly Gains -- Total of $10K invested equally in each stock
  • 5 Stocks Trading Near Highs Undervalued By Graham -- Total of $10K invested equally in each stock
  • Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
  • Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)

Portfolio Performance Comparison

Portfolio/Fund Name1 Week
Return*
YTD
Return**
1Yr AR1Yr Sharpe3Yr AR3Yr Sharpe5Yr AR5Yr Sharpe
5 Stocks Trading Near Highs Undervalued By Graham0%7%16%68%23%117%4%12%
Retirement Income ETFs Tactical Asset Allocation Moderate0%2%9%100%13%116%7%57%
Retirement Income ETFs Strategic Asset Allocation Moderate1%4%2%19%11%94%2%6%
6 Stocks Under $10 Undervalued By Graham With Quarterly Gains2%17%7%23%3%13%

*: NOT annualized

**YTD: Year to Date

We previously noted that the six cheap (as well as undervalued) stocks have shown good growth year to date but the longer term is OK but not great -- especially when you consider the volatility measured by the Sharpe number. The other selection has a more solid feel to it with Sharpe numbers that map closer to the ETF portfolio.

One Year Chart

Three Year Chart

Five Year Chart

I think that this is an interesting starting point. Of all of the selections, I like Chubb the best. They are at the top of the market cap and they have been handing out dividends for 47 years and are one of the aristocrats. They are also good value.

I like the Graham filter but only as a starting point to figure out whether the companies on the list are ones you like.

More analysis...

Source: 5 Stocks Trading Near Highs Undervalued By Graham

Additional disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.