As I mentioned in my earlier post, I wanted to apply Benjamin Graham’s seven steps of valuing a company to look for some good values right now since stocks are cheap right now. The DJIA is down more than 5000 since it reached all-time high last year. I was hoping to find plenty of stocks.

It turned out that a good value is hard to find. After scanning through all 30 companies that make uo DJIA, and all most all of the S&P500, I found a grand total of 1 company that met all of Grahams criteria. More on that company a little later. First, let me tell you how my screen went. The first criteria of my screen was a dividend paying company with a market cap of at least 1 billion. I figured that was an adequate size of the entriprise. I did not care about the current dividend yield. The next thing I looked was the current ratio of at least 2. Most of the companies failed at this point. They were not in a strong financial condition. Of those that were in a strong financial condition, most had at least one year of net loss in last 10 years even though the earning growth in last 10 years was above 33% that Graham requires. That eliminated some more companies. And few that were left after passing all these criterias were too expensive because they were trading well above the P/E of 15 (or Price/Book above 1.5).

That left me with only one company: Nucor Corporation (NYSE: NUE). First let me talk about the numbers. NUE has a market cap of roughly 12 billion and has paid dividends for last 20 years. The current dividend yield is around 3.2%. According to the latest balance sheet, NUE has a current ratio of 2.76 with $8.18 billion of current assets and $2.96 billion of current liabilities. Long term debt of $3.09 billion is well below the working capital of $5.2 billion. The average EPS for last thee years (2005-2007) is $4.91 which means a 10 year growth of 58% (average EPS for 1995-1997 was $3.10). Next, based on the the average EPS of $4.91 and the stock price of $38.90 (as of 10/30/08), it has a P/E of 7.91. The book value of the stock according to the latest balance sheet is $25.81, which means NUE has a current P/B of 1.51. The product of P/E and P/B is only 14.96, therefore it has a moderate ratio of price to asset. NUE passed all criteria that is required for a defensive investor.

There was another company I think I should mention here because I thought it was pretty good even though it failed two of Graham’s criteria; it had a loss of $0.92 per share in 1998, and only has a 16 year history of dividend payments. The company is called Baker Hughes International (BHI). This company had a growth of 600% in 10 years (from average EPS of $0.68 to $4.83). It has a current ratio of 2.71, working capital of $3.9 billion compared to long term debt of only $1.04 billion. At $33.72 (on 10/30/08, also paid a dividend of $0.15 today), it has a P/E of 6.97 and P/B of 1.51. Other than that one year with loss, BHI looked really good, so I couldn’t resist not mentioning it even if it doesn’t pass Grahams approach.

It took quite some time to filter all these companies, and I was a little bit upset that even when prices are this low, there aren’t any company out there that are cheap. Next, I looked at what these two companies did. It turns out NUE makes and sells steel, and BHI supplies products and technologies to oil and natural gas industries worldwide. Both companies are probably down right now because of the feared worldwide recession which would lower demand for steel in the near future and the recent downward spiral of crude oil price.

One thing that I didn’t even look at while analyzing these companies is the future growth and earning potential.  As always, value of a stock is based on the future earning potential. It is important to look at future growth potential before investing on any stocks. But as Graham says, projections are not always reliable, so we have to go with what we know.

I will follow these two companies and see how they do in the next couple of years.

Please note that this post is not a recommendation to buy or sell the above mentioned securities. These are merely my opinions and analysis, which may not be accurate.