Benjamin Graham

GRAHAM-Rea approach

Reward Measures:

(1) An earnings-to-yield at least twice that of the AAA bonds.
(2) A price-earnings ratio less than 40% of the highest price-earnings ratio the stock has had over the past 5 years.
(3) A dividend yield of at least two-thirds of the AAA bond yields.
(4) A stock price below two-thirds of the tangible book value per share.
(5) Stock price below two-thirds of the net current asset value.

Risk Measures:

(1) Total debt less than the book value.
(2) Current ratio greater than 2.
(3) Total debt less than twice the net current asset value.
(4) Earnings growth of the past 10 years at least at a 7% annualized (compounded) rate.
(5) Stability of earning growth where there are no more than 2 declines of 5% or more in year-end earnings in the past 10 years.