Executive Summary:
In
the asset management industry, portfolio managers who actively manage stock
portfolios spend much of their time performing cursory evaluations of many
different companies to find stocks which may be good candidates for deeper
analysis. There are many different methods that portfolio managers will use to
perform this first-pass evaluation of different companies. One such method is
the “Graham Screener”.
Benjamin Graham is widely
regarded as one of the most successful and influential value investors of all
time. His book, Security Analysis,
describes the guiding principles of Value Investing, many of which are still followed
to this day. As part of his work, Graham came up with a list of ten “points” or
“hurdles” which a stock should pass in order to be considered a good value. The
Ten Hurdles are defined as follows:
1.
An earnings-to-price yield of twice the triple-A
bond.
2.
A P/E ratio down to four-tenths of the highest
average P/E ratio the stock attained in the most recent five years.
3.
A dividend yield of two-thirds the triple-A bond
yield.
4.
A stock price down to two-thirds of tangible
book value per share.
5.
A stock price down to two-thirds of "net
current asset value" (defined as current assets less total debt).
6.
Total debt less than tangible book value.
7.
Current ratio of two or more.
8.
Total debt equal or less than twice the net
quick liquidation value.
9.
Earnings growth over the most recent ten years
of 7% compounded.
10. No
more than two declines of 5% or greater in year-end earnings (relative to the
previous year) in the most recent ten years
These criteria are very
data intensive and it would take quite a long time for a fund manager to
manually look up the numbers and perform the comparisons on them one by one. In
addition, these ten criteria are very rigorous and it is difficult for the vast
majority of stocks to pass all ten. This project is an attempt to automate the
process of applying the Graham Screener to a number of stocks based on a list
of ticker symbols provided by the user.
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