For those of us with an eye for an bargain, London markets were a happy hunting ground during the first three months of 2012 – with the value hunting strategies of legendary investor Benjamin Graham proving to be the best way of finding them. Investors kicked off 2012 in bullish mood and the stimulating effects of international monetary policies that aimed to boost confidence certainly helped equities. The FTSE All-Share was up 5.1% while the FTSE 100 was up 3.5%. As part of Stockopedia Premium, we’re tracking 59 long guru stock screens spanning a range of value, growth, income and momentum strategies, in some cases for the first time publicly for the UK Market. As a shot in the arm for the quantitative investing school of thought, the average return of these screens was 11.41%, with 85% of them exceeding the FTSE All-Share!
As index valuations clawed back much of the ground lost during last year’s market collapse, a strong focus on buying underpriced companies looks to have been a winning formula so far this year. But can it continue?
Deep value wins out
While value hunters are not necessarily concerned with day to day market movements when it comes to tracking down underpriced shares, the effect of a rising market was nonetheless a bonus for value strategies in Q1. Graham’s Net Nets – which prioritises companies that are priced at less than their theoretical liquidation value – excelled over the first three months of this year, with a return of 35.7%. His slightly less extreme NCAV screen – which targets companies selling for less than the value of their net current assets – came in second, with a return of 26.3%.
As far as Graham’s screens go, deep-value means rummaging around for the few gems in a basket of stocks that might ordinarily set off alarm bells. One company that hits both the Net Net and NCAV screens is technology group Emblaze (LON:BLZ), which is an interesting stock because it qualifies for seven of the guru strategies and scores an impressive nine out of nine on the Piotroski F-Score of financial health (more on that shortly). Dig deeper and you’ll find a company that is currently proceeding with legal action for patent infringement against, wait for it… Apple (yes, that Apple), and…
