Personal Finance
NOV

Benjamin Graham Investing: Which Stocks Would Warren Buffett's Teacher Buy Today?

MBI Price to Tangible Book Value Chart

Recently, Berkshire Hathaway CEO Warren Buffett was named the second richest person in the world, second only to his friend Bill Gates, with a net worth of $75 billion. While Buffet is a household name, what many may not know is that he owes much of his philosophy and success to a far less prominent individual.

Rare is the man that makes it to the top on his own, and Buffett will be the first to tell anyone who will listen that studying under, and working for, the "father of value investing" changed his life. Yes, I am referring to Buffett's mentor Benjamin Graham. While much of Graham's methods and formulas might not quite work today, it is instructive to see just what the man who taught Buffett everything he knows would be doing in the stock market today. And, who knows, we might just find a few interesting investment candidates as part of our journey.

MBI Price to Tangible Book Value Chart

MBI Price to Tangible Book Value data by YCharts

This fact, coupled with its record of modest profitability and relatively unleveraged balance sheet ($11.8 billion in assets and $8.1 billion in liabilities as of September 30, 2016), makes MBIA a strong candidate for any Grahamian investor. Candidate.

Transocean (NYSE: RIG) -- Transocean is a victim of the current secular downturn in the oil and gas industry. This is nothing new or unique -- the entire energy sector has had a rough few years. Far more interesting is the fact that, while it has long been known as the owner of one of the oldest offshore drilling rig fleets in the marketplace, this is no longer the case.

Thanks to the exceptional leadership of CEO Jeremy Thigpen, formerly the CFO of industry heavy-weight National Oilwell Varco , its balance sheet and fleet age are quickly improving. Today, for example, offshore drilling bell-weather Noble Corp. PLC has an average fleet age of 14.5 years. If you include newbuilds set to come online in the next few years, Transocean's average age currently sits at 14.3. Thigpen has also managed to bring the company's total debt to assets ratio down from 71.8% as of 12/31/2015 to 53.6% as of 9/30/2016. No small feat given the current operating environment. Candidate.

Atwood Oceanics (NYSE: ATW) -- Atwood Oceanics has long been admired within the offshore driling industry for its young fleet and conservative financial management.

These positives aside, investors should be forewarned: revenue and earnings continue to drop amid the drastic downturn in the sector. Revenue in the company's recent fourth-quarter fiscal year 2016 results fell 40% year-over-year, and profits were practically breakeven at $4.2 million.

Short-term results would not have scared Graham, however, especially were he to get a look at Atwood's balance sheet. As of September 30, 2016 it had $4.5 billion in assets and just $1.23 billion in liabilities. Its current operating environment is less than ideal, but Atwood is highly likely to make it through the current storm. Candidate .

Noble Corporation plc (NYSE: NE) -- as with any other offshore oil drilling contractor, Noble Corp. is doing the best it can to keep on trucking in the current environment. The shares' slide from the mid $40s down to their current $6 position has obviously been painful for shareholders, but for interested investors seeking to follow in the footsteps of the dean of value investing they are certainly worth a look.

Noble holds over 30 rigs to offer customers, which are newer than average compared to those of the company's peers. Current day rates are lower than in previous years (as might be expected with oil still 50% below its highs of 2014), but the company will likely be able to survive. As of September 30, 2016 it had $12.6 billion in assets and $7.76 billion in liabilities -- one could do worse in such a capital intensive industry. At just a quarter of tangible book value, shares are definitely worth a look for value investors. Candidate

Foolish final thoughts

While there are not a plethora of stocks Graham might be interested in on the open market today, it is clear that even eight years into a bull market there are cheap stocks to be found for those looking to follow in his footsteps.

As the quintessential teacher, one who planted trees so that future generations could sit in their shade, nothing would make Benjamin Graham happier than to know investors continue to look for fundamental values amid the speculative noise on Wall Street.

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The author(s) may have a position in any stocks mentioned.

Sean O'Reilly has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Atwood Oceanics and Berkshire Hathaway (B shares). Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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