The following companies have passed the requirements of the defensive investor, which include:
1) Adequate size of the enterprise; Market cap greater than $2 billion,
2) Sufficiently strong financial condition; Current Ratio greater than 2,
3) Earnings stability; Positive Net Income for the last 10 years,
4) Dividend record; Dividend payments for the last 10 years,
5) Earnings growth; Increase of one-third in EPS in the past 10 years using 3 year averages at the beginning and end of the period,
6) Moderate Price/Earnings Ratio; PE Ratio less than 20
7) Moderate Price/Assets Ratio; PB Ratio less than 2.5 or multiple of PB and PE less than 50.
*The company must pass at least 6 of the 7 tests in order to be suitable for the defensive investor.
Our requirements for the defensive investor are based on Benjamin Graham’s The Intelligent Investor, but have been modernized and updated.
After screening the Russell 3000 for all of the companies that pass the requirements of the defensive investor, we sort them to provide a starting point for research. Here are the results:
15 companies trading at greatest discount to intrinsic value:
| PGR | PROGRESSIVE CORP |
| VLO | VALERO ENERGY CORP |
| NI | NISOURCE INC |
| STFC | STATE AUTO FINANCIAL |
| NFB | NORTH FORK BANCORP |
| ATG | AGL RESOURCES INC |
| ASH | ASHLAND INC |
| BAC | BANK OF AMERICA CORP |
| ZION | ZIONS BANCORPORATION |
| MNI | MCCLATCHY COMPANY |
| STZ | CONSTELLATION BRANDS |
| TMA | THORNBURG MORTGAGE |
| WFC | WELLS FARGO & CO |
| CNB | COLONIAL BANCGROUP |
| COP | CONOCO PHILLIPS |
15 companies with the lowest PE Ratio (calculated using Our Methods):
| TOA | TECHNICAL OLYMPIC |
| PGR | PROGRESSIVE CORP |
| SPF | STANDARD PACIFIC |
| BZH | BEAZER HOMES USA INC |
| PHM | PULTE HOMES, INC. |
| LUK | LEUCADIA NATIONAL |
| CGI | COMMERCE GROUP, INC. |
| MTH | MERITAGE HOMES CORP |
| KBH | KB HOME |
| MHO | M/I HOMES, INC. |
| WHI | W HOLDING COMPANY |
| AET | AETNA INC |
| OFG | ORIENTAL FIN’L |
| OXY | OCCIDENTAL PETROLEUM |
| MDC | M.D.C. HOLDINGS, INC |
15 companies with the highest Return on Invested Capital (ROIC) using Warren Buffet’s definitions of owner earnings and contributed capital:
| RCII | RENT-A-CENTER, INC. |
| DEBS | DEB SHOPS, INC. |
| DLX | DELUXE CORPORATION |
| HRB | H&R BLOCK INC |
| PCU | SOUTHERN COPPER CORP |
| NUE | NUCOR CORPORATION |
| RYL | RYLAND GROUP, INC |
| KCP | COLE (KENNETH) PRODS |
| MDC | M.D.C. HOLDINGS, INC |
| LEN | LENNAR CORP |
| TTC | TORO COMPANY (THE) |
| EXPO | EXPONENT, INC. |
| LIZ | LIZ CLAIBORNE, INC. |
| OSG | OVERSEAS SHIPHOLDING |
| SEB | SEABOARD CORPORATION |