A few weeks ago, while i was trying to locate some stocks to have, i use the phenomenal FINVIZ screener.
Because this is my first post at "Seeking Alpha", i just want to tell a bit about the way i invest:
The Graham way. To be honest, i used to invest in "Junk bonds" and it went well until it failed. So since the big fall in bonds i started to search for a better way to invest in stocks, so i came up with the "Intelligent Investor" by Ben Graham and I'm trying to read a lot about Warren Buffet way and moves.
Anyway, let's go into it... into the reasons i believe WDC stock could be a good "Buy" stock.
According to the Graham way of investment, i searched for stock which meats the requirements of Graham with bit changes i made to be more "comfortable" with the "Goal".
Those are the parameters i searched for:
- Index: S&P500.
- Dividend: Positive.
- PE: Lower the 15.
- Return On Equity: Greater than 15.
- Debt/ Equity: Lower than 0.5
- Sales Growth in past 5 years: Positive.
- ROI: Greater than 15.
- EPS Growth this year: Positive.
- Current Ratio: Over 2.
- P/B: Lower than 2.
- EPS Growth past 5 years: Over 5%.
- ROA: Over 5%.
It's not a secret: WDC at the higher price since 2006, But as i found out sometimes, it doesn't mean no new high can be reached.
For me, the most important parameter are: PB (1.47), PE (6.1) and the ROE (29.39%). But let's review the full answers of the 12 requirements above:
- Index: S&P500. (Yes)
- Dividend: Positive. (1.99%)
- PE: Lower the 15. (6.1)
- Return On Equity: Greater than 15. (29.39%)
- Debt/ Equity: Lower than 0.5 (0.26)
- Sales Growth in past 5 years: Positive. (17.94%)
- ROI: Positive. (24.7%)
- EPS Growth this year: Positive. (112%)
- Current Ratio: Over 2. (2.16)
- P/B: Lower than 2. (1.47)
- EPS Growth past 5 years: Over 5%. (21.4%)
- ROA: Over 5%. (19%)
I prefer not to got deeply for each parameters, and just make sure if the stock is "Cheap". So i use the Multiple f PE & PB ratios and just make sure it's up to 22.5:
PB (1.47) * PE (6.1) : 8.96
This result is lower by far than Graham Maximum ratio of 22.5.
I don't know why this stock is cheap. That's true. But if make a decision to invest in the market - i must to into account that i have some "Margin of safety:
This can be found by the current "Earning Yield" which is 16.5%. (According to Graham way of work, only if this calculation is doubled than long terms AAA bonds it has a margin of safety.)
The Debt to equity is only 0.26- which is good enough.
I'm long on WDC.
Disclosure: I am long WDC.