Having ended 2022 on a low note, U.S. market indexes have overall shown stronger performances so far in 2023.
The S&P 500 has posted a 15.36% return year to date, while the Dow Jones Industrial Average has risen 2.37% and the Nasdaq Composite has gained 31.69%.
Based on these developments, as we head into the second half of 2023, investors may be interested in potential opportunities among companies that qualify for Benjamin Graham’s Lost Formula screen, a Premium GuruFocus feature.
Prior to his death in 1976, the legendary investor who authored "Security Analysis" and "The Intelligent Investor" developed a refined formula that screened for companies with a price-earnings ratio of less than 10 and an equity-to-asset ratio of at least 0.5. The formula got its name from the fact he was unable to publish it before his passing; therefore, it was lost from public knowledge for a time.
A backtest of the strategy from 1926 to 1976 showed it would have outperformed the Dow benchmark by approximately twice as much.
The screener found new companies with market caps above $1 billion that met the criteria as of July 6 included California Resources Corp. (CRC, Financial), Ironwood Pharmaceuticals Inc. (IRWD, Financial) and Cogent Biosciences Inc. (COGT, Financial).
California Resources
California Resources (CRC, Financial) has a $3.15 billion market cap; its shares were trading around $44.62 on Friday with a price-earnings ratio of 3.38 and an equity-to-asset ratio of 0.52.
Founded in 2014 the Long Beach, California-based company explores for and produces oil and natural gas. Committed to energy transition, California resource has some of the lowest carbon intensity production in the U.S.
The GF Value Line suggests the stock is modestly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings estimates.
At 40 out of 100, the GF Score indicates the company has poor performance potential on the back of a high financial strength rank, middling marks for profitability and a low value rating. However, since it did not receiving grades for growth or momentum, California Resources’ full prospects may not be reflected.
The company also has a high Piotroski F-Score of 7 out of 9, meaning its operations are healthy. However, the Altman Z-Score of 2.53 implies it is under some pressure. It also has a predictability rank of one out of five stars. According to GuruFocus research, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in California Resources, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest position with 0.44% of its outstanding shares. Jeremy Grantham (Trades, Portfolio), Hotchkis & Wiley, Paul Tudor Jones (Trades, Portfolio), John Hussman (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Jefferies Group (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss also own the stock.
Ironwood Pharmaceuticals
Ironwood Pharmaceuticals (IRWD, Financial) has a market cap of $1.58 billion; its shares were trading around $10.16 on Friday with a price-earnings ratio of 10.06, a price-book ratio of 2.23, a price-sales ratio of 4.51 and an equity-to-asset ratio of 0.61.
The pharmaceutical company, which is headquartered in Boston, develops therapies to treat gastrointestinal diseases like irritable bowel syndrome and gastroesophageal reflux.
According to the GF Value Line, the stock is fairly valued currently.
The GF Score of 65, however, implies the company has poor future performance potential. While it received a high financial strength rank, the ratings for value, momentum and profitability are more moderate and growth is low.
The company is also supported by a high Altman Z-Score of 3.39, indicating it is in good standing. The Piotroski F-Score of 6 is more moderate, but suggests conditions are typical for a stable company. Further, it has a one-star predictability rank.
With a 4.01% stake, the Vanguard Health Care Fund (Trades, Portfolio) is Ironwood Pharmaceuticals’ largest guru shareholder. Other investors include Simons’ firm, Chuck Royce (Trades, Portfolio), Hotchkis & Wiley, First Eagle Investment (Trades, Portfolio), Jefferies Group (Trades, Portfolio), Hussman, Greenblatt, Ken Fisher (Trades, Portfolio) and Steven Cohen (Trades, Portfolio).
Cogent Biosciences
Cogent Biotherapeutics (COGT, Financial) has a $1.02 billion market cap; its shares were trading around $12.24 on Friday with a price-book ratio of 5.39 and an equity-to-asset ratio of 0.85.
Established in 2014, the Waltham, Massachusetts-based biotech company focuses on developing novel precision therapies to treat a broad range of genetically defined diseases. Up until October 2020, it was known as Unum Therapeutics Inc.
Although it has been a public company for several years, there is currently not enough historical data to generate a GF Value Line. However, the stock has gained around 9.39% year to date.
Based on its low GF Score of 38, the company appears to have weak performance potential. Even though it raked in high ratings for momentum and financial strength, the other three criteria did not receive ranks. As such, its full prospects are not accurately reflected.
Cogent Biosciences has a low Piotroski F-Score of 1, which indicates its operations are in poor shape.
Cohen is Cogent’s largest guru shareholder with a 3.15% stake. The stock is also being held by Fisher, Simons’ firm and Jones.
