The effectiveness of your search for value opportunities can be enhanced by considering fairly-priced or undervalued stocks. This is what Benjamin Graham, the father of value investing, recommended: multiply the stock’s price-earnings ratio by its price-book ratio to obtain what is known as the "Graham blended multiplier," then choose those stocks whose blended multiplier stands below 22.5.
The following securities may thus be of interest of value investors, as they have a Graham blended multiplier below 22.5.
Komatsu
The first company under consideration is Komatsu Ltd (KMTUY, Financial), a Japanese global manufacturer and seller of construction, mining and utility equipment.
Shares were trading at a price of $22.12 per unit at close on Jan. 31 for a market capitalization of $20.89 billion.
The stock has a Graham blended multiplier of 13.7, as the price-earnings ratio is 10.54 and the price-book ratio is 1.3. The industry has a median of 14.4 for the price-earnings ratio and a median of 1.31 for the price-book ratio.
In the past year through Jan. 31, the share price fell 12% to below the 200-, 100- and 50-day simple moving average lines.
The 52-week range is $20.55 to $26.48.
In 2019, the company paid semi-annual dividends of 54.3 cents per common share on July 1 and of 50.2 cents per common share on Dec. 12. The dividend produces a 4.73% trailing 12-month yield and a 4.54% forward yield as of Jan. 31. The company has paid dividends for 23 years.
Wall Street issued a buy recommendation rating for shares of Komatsu Ltd and has established an average target share price of $29.44.
Cimarex Energy Co
The second company under consideration is Cimarex Energy Co (XEC, Financial), a Denver, Colorado-based independent oil and gas explorer and producer with mineral reserves in Oklahoma, Texas and New Mexico.
Shares closed at a price of $43.89 per unit on Jan. 31 for a market capitalization of $4.47 billion.
The stock has a Graham blended multiplier of 10, as the price-earnings ratio is 8.71 and the price-book ratio is 1.15. The industry has a median of 10.74 for the price-earnings ratio and of 0.91 for the price-book ratio.
In the past year through Jan. 31, the share price dropped 42% to below the 200-, 100- and 50-day simple moving average lines.
The 52-week share price range is $37.19 to $77.1.
The company is currently paying a quarterly cash dividend of 20 cents per common share. The next payment will be made on Feb. 28, 2020. The dividend generates a trailing 12-month dividend yield of 1.78% and a forward dividend yield of 1.82% as of Jan. 31. Cimarex Energy has been paying dividends for approximately 14 years.
Wall Street issued an overweight recommendation rating for this stock with an average target share price of $65.52.
RCI Hospitality
The third company under consideration is RCI Hospitality (RICK, Financial), a Houston, Texas-based operator of upscale adult nightclubs, restaurants and sports bars for businessmen and professionals in the U.S. The company also owns and operates several social media websites.
Shares traded at a price of $17.73 per unit on Jan. 31 for a market capitalization of $164.14 million.
The stock has a Graham blended multiplier of 10.73, as the price-earnings ratio is 10.62 and the price-book ratio is 1.01. The industry has a median of 24 for the price-earnings ratio and of 2.55 for the price-book ratio.
In the past year through Jan. 31, the share price declined 23% to below the 200-, 100- and 50-day simple moving average lines.
The 52-week range is $12.5 to $25.71.
Currently, the company is paying a quarterly cash dividend of 3 cents per common share. The trailing 12-month dividend yield is 0.73% and the forward dividend yield is 0.68% as of Jan. 31. The company has been paying dividends for about four years.
Wall Street issued a buy recommendation rating for this stock and has established an average target share price of $33.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- A Duo of Underperforming Stocks to Ease Up On
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- 3 Low Price-Book Stocks on Investors' Radars
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