Hi, I am afraid there could be some problem with the screener because some stocks disappear and other appear.
For example HOFT used to qualify as defensive stock. Now it no longer appears in both defensive and enterprising.
I am not sure if that's because perhaps it closed the year on a negative sign? However trailing EPS is positive and the only minus sign is EPS (does this represent EPS 2020?). Even in that case, should it not just drop down to enterprising?
Aside from HOFT, I have noticed that now the screener for US Stock market includes stocks like Big Lots, Naspers for example. A year ago when their price was much lower and I screened for stock, they did not appear (I had set 70% filter for % intrinsic value). How is this possible? If they clear the criteria and make the cutoff now for intrinsic value all the more they should have cleared it a year ago when the price was lower. As assurance I also checked the BIG EPS trend and no, also a year ago it cleared the criteria for eps growth. So they should have been there. And I would have bought them back them, making a nice profit.
I think it would be helpful to figure out what could be the reason why some stocks pop in and out when seemingly it doesn't have to do with their fundamentals having changed to an extent not to clear the criteria anymore. Might have to do with the screener itself? Thanks
Submitted by rc2752. Created on Tuesday 22nd June 2021. Updated on Tuesday 22nd June 2021.
Earnings Deficit ⇒ Ungraded
Dear rc2752,
Thank you for your forum post!
Serenity's screener is a pretty straightforward piece of code that simply checks stock parameters against selected filters. The screener doesn't actually calculate any of the stock metrics. The metrics for each stock are recalculated every time one if its values changes, typically every other day when its price is updated; or less frequently, when its fundamental data changes.
It's absolutely possible for a single year's deficit in earnings to bring a stock down from a Defensive grade to Ungraded, since even Enterprising grade stocks require five years of positive earnings. Hooker Furniture Corp (HOFT) seems to be a perfect example of such an occurrence, since it appears to have an earning deficit for the Fiscal Year of 2021-01-31.
But stocks are usually undervalued because of an overreaction to expected bad news ahead. So short-term drops in a stock's grading need not be taken too seriously.
As for Big Lots Inc (BIG) and Naspers Ltd (NAPRF), both stocks seem to have seen large increases in earnings in their most recent reported Fiscal Year. This would have naturally caused an increase in their Enterprising Price (Serenity №), allowing them to receive a more positive grading.
For a more detailed explanation of how Graham Grades are calculated on Serenity, please see the Quick Reference.
Thank you again for your forum post!
BIG Lots example
Hi serenity, thanks again for your reply.
Regarding HOFT it is clear, I just wasn't sure if it closed the year in the negative. But regarding Big Lots example, I still am afraid the screener should have presented it all along since last year. Looking at the enterprising criteria, here they are
A. Current assets at least 1½ times current liabilities.
1-B. Debt not more than 110% of net current assets.
2. Earnings stability: No deficit in the last five years covered in the Stock Guide.
3. Dividend record: Some current dividend.
4. Earnings growth: Last year's earnings more than those of 1966.
5. Price: Less than 120% net tangible assets.
Barring any changes in the capital structure, the last year surge in earnings should not be the cause of their sudden appearance on the screener. In fact let's take a look:
Book Value Per Share (BVPS):
35.99
Tangible Book Value Per Share (TBVPS):
35.99
Earnings Per Share (EPS):
16.11
EPS - TTM:
17.26
EPS - 2 Years Ago:
6.16
EPS - 3 Years Ago:
3.83
EPS - 4 Years Ago:
4.41
EPS - 5 Years Ago:
3.32
EPS - 6 Years Ago:
2.80
EPS - 7 Years Ago:
2.46
EPS - 8 Years Ago:
2.44
EPS - 9 Years Ago:
2.93
EPS - 10 Years Ago:
2.97
EPS - 11 Years Ago:
2.83
EPS - 12 Years Ago:
2.44
Even last year, its earnings were 6.16 which is well above the 5 years before, or any previous year for that matter or its average. While the surge to 16.11 further solidifies the position for this criteria, the stock should have appeared in the list since a year and over ago. If I calculate the average of 2,3 and 4 years ago is 4.8 compared to 2.74 of years 12,11 and 10, so up over 70%, clearing the 30% growth criteria. Hence I do not see why this stock had not appeared on the screener all along and only now if my math is correct.Naspers similar case, massive EPS growth in the last few years prior to the most recent fiscal year. Dividends also check out, paid in all recent years. Price was actually lower back then so that's not the criteria either, and the capital structure requirements right now are cleared by such a high margin that even without pulling out last year's annual report, you can tell that couldn't be it either. From what I see nothing has changed to make them be included now, they should have come out in the screener in 2020, unless I am missing something.
Balance Sheet Etc
Dear rc2752,
Thank you for your comment!
It's very difficult to hypothesize why a stock was graded differently in the past, as Serenity does not store data and analyses from past fiscal years.
As shown in the case of Hooker Furniture Corp (HOFT), a single value can reduce a stock from a Defensive grade to Ungraded. It's not just price, earnings and dividend values that change every year; but all the balance sheet numbers as well.
Serenity currently lists close to 124,000 stocks on its screeners. If there is any stock that is currently displaying a wrong Graham Grade as against its listed data, the possibility of bugs can investigated further.
But as mentioned earlier, the screener code is quite straightforward and no bug has ever been reported in its ten years of operation. Any perceived inconsistencies have always been data related.
Thank you again for your comment!
Early Sell?
Hello everyone
I'm still having doubts when to sell a stock. When Hooker Furniture Corp went from defensive to enterprising I sold. Now it's like NCAV.
I have the same problem with Carpenter Technology Corp. She was in defensive strategy and went to ungraded.
Graham said:
The investor is to run the numbers for his portfolio once a year or so, and readjust the portfolio as required. Stocks that no longer clear the Graham framework — either due to price appreciation or value deterioration — are to be sold. They may be replaced with new stocks that clear the Graham framework.
"Even defensive portfolios should be changed from time to time, especially if the securities purchased have an apparently excessive advance and can be replaced by issues much more reasonably priced"
In these sentences "either due to price appreciation or value deterioration","the securities purchased apparently have an excessive advance" could you give examples?
Article Archives
Dear pipo2152,
Thank you for your comment!
As you appear to be quoting from Graham's Notes on Selling, please note that only the second quote is by Graham. The first line was simply an attempt to summarize Graham's notes.
Also, Serenity does not track past Graham Grades. But you can easily find such examples by looking at older articles such as 2012 Defensive Graham Stocks. A list of all such articles can be found on the Sitemap, under Archives.
Thank you again for your comment!