Scouring Ben Graham Stocks in Singapore!

Scouring for Ben Graham stocks is a hard thing to do these days. It not only is rare but some feel it is ever to a certain exten extinct already. Now, what is a Ben Graham stock. If you would like to know, during the time when Behjamin Graham was spectecularly successful, Ben Grahan bought into stocks that were trading very much below book value. He would buy a stock if it was trading at 2 thirds the net current asset value. The net current asset value can be calculated by taking the total current assets of the company and subtracting the total liabilities of the company. This figure is finally divided into the number of shares outstanding for the company and you get the Net Current Asset Value per share. This also means that the company's very liquid assets could pay off all its liabilities if the figure is positive. He then compares it to the per share price of the company and if it trading below 2 thirds of the NCAV per share, he would have bought it.

The problem with using this approach is that the method has been so popularised in the US that stocks of such nature are extinct. Any company trading near book value would have been spotted by value and vulture investors eyeing its debt, equity and assets and not allowed to trade below book value. Theoretically, a company that trades below book value could be bought over and liquidated and a decent profit would be realised. For example, if a company was trading at half of book value, a vulture realising that it is worth double could buy over the company and liquidate its assets, leaving a decent return for him. Furthermore, plant property and equiptment may only be reflected at cost and not market values. Upon liquidations, the true book values may be worth far more.

That being said, where can one find Ben Graham stocks? I did a detailed study of the Singapore Stock market, an emerging market and found several. The most notable of which is Matex International, a company selling dyestuffs, a rather 'Unsexy' company largely ignored by the ignorant investors.

Check this out. The company is selling at 12 cents per share and has 178000000 shares outstanding. It has a current asset value of 63.36 million and total liabilities of 27.73 million. The NCAV per share equates to 20 cents a share. Buying it at 12 cents a share would imply a discount of 40% to the NCAV, trading well below 2 thirds of the NCAV.

Just to add to the confirmation that the company is undervalued, i called the company and spoke to management and they claimed that the stock is fairly undervalued and they have no idea why. Insiders confirm that the company is even expanding in China by adding more plants and the tone of the conversation seemed positive.

So there you go.... An extinct stock by Graham's standards found in the tiny Island of Singapore. Bottom line: If you look hard enough, you will find it! And one place to start looking is : Singapore and many other emerging markets if and only if youwere confident of accounting and governance standards.


Written by: Lucas Lim