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What Singapore Stocks Would Interest Warren Buffett’s Investing Mentor Today?

Benjamin Graham may not be very well-known outside investing circles, but he’s very much a legend within.

Not only did Graham turn in a great market-beating long-term track record over his career, he was also the well-respected mentor of the very successful billionaire investor Warren Buffett and the author of two classic investing texts, Security Analysis and The Intelligent Investor.

Investing with a legend

When Graham was investing money professionally, one of the methods he used to determine if a stock was a bargain was to compare a stock’s market capitalisation with its net current asset value. (The net current asset value of a stock can be found by subtracting a stock’s total liabilities from its total current assets).

Graham wanted to find stocks with market caps that are lower than their net current asset values; such stocks are known commonly as net-net stocks.

The problem with net-net stocks is that they are typically mediocre companies at best, or poor at worst. Companies that become net-net stocks often have zero competitive advantages and can be in serious business trouble. That’s why Graham advocated diversifying widely when investing in them.

Putting it into action today

I wanted to see how many net-net stocks there currently are amongst the 700-plus Singapore-listed stocks that are in the database of S&P Global Market Intelligence.

Turns out, there are 120 net-net stocks in Singapore right now. But, I also wanted to refine my search criteria so that only companies that are facing less risks can come through. So, I added two more conditions: A company must (1) have a debt-to-equity ratio of less than 50%, and (2) have a positive net income over the last 12 months.

I chose the two conditions to help me find profitable companies that are not dangerously leveraged.

At the end, 12 names filtered through. Here are three I randomly chose: LTC Corporation Ltd (SGX: L17), Sinostar PEC Holdings Limited (SGX: C9Q), and Smartflex Holdings Ltd (SGX: 5RE).

Net net stock table
Source: S&P Global Market Intelligence

Given their low valuations and financial characteristics, the trio of LTC, Sinostar PEC, and Smartflex could possibly be companies in Singapore’s stock market today that could interest Graham.

But it’s worth noting that none of the above should be seen as formal recommendations of the three aforementioned stocks or the use of the net-net methodology to pick stocks. Instead, see the information presented in this article as useful starting points for further research.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any company mentioned.