Success Stories from the Cabot Benjamin Graham Value Letter
By
J. Royden Ward, Analyst and Editor of
Cabot Benjamin Graham Value LetterThere's nothing better than some real-life examples to show you how the Cabot Benjamin Graham Value Letter works.
We recommended
Ceradyne (CRDN) in the June 2007 issue of the Cabot Benjamin Graham Value Letter at a price of 55.10. We stated that Ceradyne is a diversified manufacturer of products including ceramic body armor for the defense department. We noted that analysts were forecasting a major slowdown in EPS growth for the year ahead, but we believed the company would surprise investors with better than expected sales and earnings. We were correct, and CRDN shares shot up 39%. We sent out a sell alert to our subscribers on June 15, 2007 to sell the stock at our Minimum Sell Price target of 76.69. Since our sell alert, CRDN has declined 40%. Our research showed that the stock was undervalued at the price of 55.10 and became overvalued at 76.69.
Total System Services (TSS) is the world's largest processor of credit and debit card transactions. When Total Systems announced that Bank of America would not renew its contract, the stock dropped. Although Bank of America was an important customer for Total Systems, we believed the company would quickly find new business to replace the void left by Bank of America. Our advice to investors in December 2005 was to buy at the reduced price, because the stock was oversold. From December 2005 to May 2007, TSS shares increased by 56% from our Maximum Buy Price of 22.10 to our Minimum Sell Price of 34.56. Our subscribers were informed of the price to buy and the price to sell right from the time the stock was recommended. Since our sell alert on May 23, 2007, TSS has dropped 36%.
Countrywide Financial (CFC) was and still is the nation’s largest independent residential mortgage lender. Back in December 2002 when we first recommended Countrywide, the company was taking advantage of the low interest rate environment and the building boom. Although the building boom had been in full swing for quite some time, we believed the boom would continue for at least another two years. We informed our subscribers that CFC was clearly undervalued at only 7.5 times current EPS and at 1.2 times book value. Our subscribers bought shares at 12.04 (adjusted for stock splits) on December 10, 2002 and held their positions patiently until the stock hit our Minimum Sell Price of 34.80 on February 24, 2005 after a whopping increase of 189.2% in 26 months. Slowing revenue and earnings growth and an accelerating stock price clearly indicated that CFC shares were overpriced and should be sold. The ensuing mortgage meltdown caused the stock to plummet. Today, CFC is down 81% from our Minimum Sell Price achieved in February 2005.
Standard Pacific Corp. (SPF), based in Irvine, CA, is a major U.S. homebuilder operating in the Southwest and Southeast. When we recommended Standard Pacific in the February 2003 issue of the Cabot Benjamin Graham Value Letter, the company had been riding the building boom during the past seven years and experienced over 30% earnings per share growth during the previous five years. We strongly urged investors to buy SPF, because the stock was a bargain at 6.0 times EPS and 1.0 times book value. The shares had declined 30% because investors were sure the building boom would soon end, but we disagreed. We accurately predicted the boom would continue for at least another two years. We were so confident in our prediction, we advised our subscribers to buy more shares if the stock declined by 10%, and if the stock somehow declined by 20% from our buy price, buy even more shares. SPF declined only 5% before skyrocketing to our Minimum Sell Price 23 months later. From our Maximum Buy Price of 12.50 (adjusted for stock splits) on February 10, 2003 to our Minimum Sell Price of 33.66 on January 19, 2005, SPF gained 169.2%. The building boom ended six months later, and the stock has been plummeting ever since. SPF shares have now declined by 94.5% since we issued our sell alert in January 2005.
February 2008
About Benjamin Graham, the Father of Value Investing
How Cabot Applies the Benjamin Graham Value Strategy
Guide to Value Investing with the Cabot Benjamin Graham Value Letter
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