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

USG

Lets take a look at the some of Buffett's previous investments and ponder over them..perhaps some of his wisdom can enlighten us.

USG.In 2001, Berkshire Hathaway bought USG stock for about $15 a share .A few months later, much to dismay,USG filed for bankruptcy.One underlying reason for this was the huge asbestos ligation that it faced. USG "faced more than 250,000 claims",which battered the stock and drove it to an all time low of $2.80. The CEO felt that bankruptcy would be the only alternative left as it would protect the business from claimants while it worked on settling the asbestos ligation.Such a strategy would keep the company from being forceably liquidated by claimants while giving it time to work out an arrangment with the claimants.

Buffet was sure that the stock would bounce back and even loaned USG stock to short sellers at an interest,knowing that the fundamentals of the company were strong and it was just a matter of time.

After its bankruptucy in 2001, the housing boom in the US meant strong growth for the company in the coming years and helped boost the company's revenues.Now, the stock current trades abt $54 and Buffett's stake is worth at abt 700 million,which is roughly abt 5 times his intial investment.

Here a key lesson is learnt.Ignore the pessimism surrounding the company and dig into its fundamentals to uncover its true potential.

Written by Manpreet

Tweedy Browne's principles to value investing

For those in the investing community, they might know who Tweedy Browne is. Tweedy Browner used to be a brokerage executing trades for Ben Graham, the father of value investing. And since then, Tweedy has been raking returns of around 15 - 20% for the past 20 years or so. Impressive isnt it? And so here it is, certain principles of Tweedy Browne that we can all apply:

1. Low price in relation to assets

2. Low PE

3.Insider Purchases

4.Significant decline in stock price

5.Small market Capitalization

Found a link to morningstar's approach to equity valuation

http://news.morningstar.com/article/article.asp?id=83572&ssection=topright1

Written by Manpreet

Recently, i did an evaluation on Sarin Technologies which is listed on SGX.Here is a summary from its annual report of its main businesses.

"Our products currently provide the diamond industry with technological solutions for five main areas:
(a) Planning the optimal utilization of the rough stones in order to cut the rough stones so as to achieve the maximum yield and value;
(b) Sawing, cutting and shaping of rough stones using advanced green laser technology, so as to significantly reduce the risk of stone breakage and reduce rough material waste;
(c) Polishing the facets on rough stones to transform them into polished gems, by using Sarin-developed disposable polishing discs, as source of recurring income for the Company;
(d) Measurement of two (Colour and Cut) of the four parameters of the polished diamond (Colour, Cut, Clarity and Carat) in order to help determine the value of the diamond, based on the quality grade of its colour and cut, as well as light performance measurement systems for enhancing a polished diamond’s certification; and
(e) Inscribing on polished diamonds with distinct marks like text, numerals and symbols, so as to aid in the diamond’s identification and personalisation.
Our business strategy is to consolidate our position as a market leader for the provision of high technology solutions in the diamond and gemstone industries"

Its largest market is India where 77.4% of its revenue comes from there.With the indian economy promising to maintain its stellar growth,this will continue to be a profitable source of operations.

Also, management has continued to maintain a large stake in the company,indicating their belief that the company will continue its growth

Ratios

Average net margin for last 5 yrs is 24.68


Current working capital ratio is 0.34 and stock is trading at a 20% premium
4 yr average ROA is 75.68%
4 yr average ROE is 156.9%
Current ratio is a healthy 2.98
Free cashflow per share after net capital expenditures is 0.14.So the stock is really selling at 0.41

Calculated intrinsic value is 0.75 USD. Buy price would be 0.56 USD

Assumptions:Using a 3 stage DCF,with growth rate of 20% for first 5 years, followed by 10% for the next 5 years and a terminal growth of 3%.Also assumed a debt level of 10% and discount rate 15% & a margin of safety of 25%

Written by Manpreet