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Value Investor's Worksheet

In her book, Value Investing Made Easy, Janet Lowe reports that value investing invariably falls out of favour during bull markets. Benjamin Graham's son, who owns the rights to his father's books Security Analysis and The Intelligent Investor reports that the books generally sell poorly during roaring markets. But after a market correction, the book sales pick up again.

Since the market has been palgued by periodic bear markets since the year 2000, let's revisit Value Investing with a tool you can use to assess stocks according to value investing principles. In her book, Lowe lists ten attributes of an undervalued stock. The first five criteria measure risk. Criteria 6 and 7 show financial soundness and the last three factors show earnings history. According to Graham, any company that meets 7 out of 10 of the criteria is an undervalued stock.

Now rather than just list the ten attributes, I've created a worksheet. After the article is a link to a printable version. You can then use it to analyse a company of your choice.

The Value Investor's Worksheet

Company____________Stock Symbol_____ Exchange_____


City________ Prov./State_____

1. Earnings to Price Yield_____ AAA Bond Yield_____

The earnings to price yield should be double the AAA bond yield. Earnings to price is the reverse of the P/E ratio. If a company has a P/E of 20, its E/P is 1/20 or 5%. If its P/E is 50, its E/P is 1/50 or 2%.

2. Current P/E Ratio_____ Highest Ave. P/E (last 5 years)_____

The current P/E should not be more than be 40% of the highest P/E in the last five years.

3. Dividend Yield_____ AAA Bond Yield_____

The dividend yield should be two-thirds of the AAA bond yield.

4. Stock Price_____ Tangible Book Value_____

The stock price should be two-thirds of the tangible book value of the company. Book value = (total assets - liabilities - stock issues ahead of common stock)/number of common shares.

5. Stock Price_____ Net current asset value_____

The stock price should be two-thirds of the net current asset value or net quick liquidation value. Net current asset value = Current assets - current liabilities.

6. Tangible Book Value_____ Total debt_____

Total debt should be lower than tangible book value.

7. Current ratio_______________________

The current ratio should be 2 or more. Current ratio = Current assets/current liabilities

8. Total debt_____ Quick liquidation value_____

Total debt should be less than the quick liquidation value.

9. Current earnings_____ Earnings 10 years ago_____

Earnings should have doubled in the last ten years.

10. Earnings history (list EPS for each of last ten years)
Year 1_____ Year 2_____ Year 3_____ Year 4_____ Year 5_____
Year 6_____ Year 7_____ Year 8_____ Year 9_____ Year 10_____

Earnings should have declined no more than five percent in no more than two of the last ten years.

Printable Version

Some Elaboration on the Worksheet

As mentioned above, Lowe says a company should meet 7 out of 10 criteria to be considered undervalued. But, she notes, "they should not be followed like a cookbook recipe". The criteria one wants to abandon depends on their goals. Investors looking for income should pay closer attention to items 1-7, and particularly criterion number 3. Those looking for a balance between safety and growth can ignore criterion # 3 and focus on the other 1-5 and numbers 9 & 10. Meanwhile, those looking for exceptional share price growth can ignore criterion # 3, give lighter weight to 4, 5 & 6, and give heavy weighting to numbers 9 & 10. She says that in this way, "investors can select those elements that best achieve their goals and compromise on those that do not".


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