Screened Stocks: Graham Sell Decision Analysis

Date: 2025-12-03 Based on: Graham Value Stock Screening Results Framework: Benjamin Graham Sell Decision Framework

Executive Summary

This document applies the Graham sell decision framework to stocks identified in the 2025-12-03 screening. The analysis provides specific sell triggers, monitoring points, and action plans for each candidate.

Screening Summary:

• Strict Graham Screen: 90 stocks (P/E<15, P/B<1.5, CR>2, MCap>$1B)
• Quality Value Screen: 225 stocks (P/E 5-20, ROE>12%, D/E<100%)
• Dividend Value Screen: 82 stocks (Yield>2%, P/E<20, 5+ yrs growth)
• Large Cap Value: 95 stocks (P/E 0-20, PEG<1, MCap $10B-$100B)

Analysis Methodology

1. Primary Sell Signal: Graham's 22.5 Rule

Sell Threshold: P/E Ratio × Price-to-Book Ratio > 22.5
Warning Zone: 18-22.5 (Monitor closely)
Safe Zone: < 18 (Adequate margin of safety)

2. Secondary Signals

• Fundamental Deterioration: Earnings decline, dividend cut, balance sheet weakness
• Market Euphoria: Excessive valuation, media hype, retail frenzy
• Opportunity Cost: Better alternatives available

3. Action Categories

• STRONG HOLD: P/E×P/B < 15, fundamentals strong
• HOLD: P/E×P/B 15-18, fundamentals stable
• MONITOR: P/E×P/B 18-22.5, or one concerning fundamental
• CONSIDER SELLING: P/E×P/B > 22.5, or multiple concerning fundamentals
• SELL: Clear sell signals present

Top Candidates Analysis

1. Deep Value Stocks (P/E×P/B < 10)

Gerdau S.A. (GGB)

Metrics: P/E 12.8, P/B 0.13, P/E×P/B 1.7, Yield 3.15%, MCap $7.1B

Analysis:

• Valuation: Extremely attractive (1.7 vs 22.5 threshold)
• Fundamentals: Steel industry cyclical, monitor global demand
• Dividend: Moderate yield, check payout sustainability
• Balance Sheet: Typically leveraged in steel industry

Sell Triggers:

1. P/E×P/B exceeds 15 (significant appreciation needed)
2. Dividend cut or suspension
3. Debt/Equity exceeds 150%
4. 50%+ price appreciation from current levels

Action: STRONG HOLD - Significant margin of safety

Suzano S.A. (SUZ)

Metrics: P/E 9.0, P/B 0.25, P/E×P/B 2.3, Yield 3.65%, MCap $11.2B

Analysis:

• Valuation: Very attractive (2.3)
• Fundamentals: Pulp & paper cyclical, commodity pricing sensitive
• Dividend: Attractive yield, monitor commodity cycles
• Geographic: Brazilian company, currency risk

Sell Triggers:

1. P/E×P/B exceeds 12
2. Pulp prices decline significantly
3. Brazilian real volatility
4. 40%+ price appreciation

Action: STRONG HOLD - Good value with income

Ternium S.A. (TX)

Metrics: P/E 13.0, P/B 0.62, P/E×P/B 8.1, Yield 7.17%, MCap $7.4B

Analysis:

• Valuation: Very attractive (8.1)
• Fundamentals: High dividend yield, monitor steel cycles
• Dividend: High yield requires careful payout ratio monitoring
• Geographic: Latin America exposure

Sell Triggers:

1. P/E×P/B exceeds 15
2. Dividend coverage ratio < 1.5×
3. Steel prices decline >20%
4. 35%+ price appreciation

Action: HOLD - Attractive value with high income

2. Quality Value Stocks (P/E×P/B 10-18)

VICI Properties Inc. (VICI)

Metrics: P/E 10.8, P/B 1.10, P/E×P/B 11.9, Yield 6.33%, MCap $30.4B

Analysis:

• Valuation: Attractive (11.9)
• Fundamentals: Gaming REIT, monitor occupancy and tenant health
• Dividend: High yield typical for REITs
• Sector: Real estate interest rate sensitive

Sell Triggers:

1. P/E×P/B exceeds 18
2. Dividend coverage < 1.2×
3. Major tenant issues (Caesars, MGM)
4. Interest rate hikes impacting valuation
5. 30%+ price appreciation

Action: HOLD - Good income play, monitor interest rates

Aegon Ltd. (AEG)

Metrics: P/E 8.7, P/B 1.36, P/E×P/B 11.8, Yield 5.58%, MCap $12.6B

Analysis:

• Valuation: Attractive (11.8)
• Fundamentals: European insurer, monitor interest rate environment
• Dividend: High yield, check sustainability
• Regulatory: Insurance industry heavily regulated

Sell Triggers:

1. P/E×P/B exceeds 18
2. Dividend payout ratio > 80%
3. Regulatory changes impacting profitability
4. 35%+ price appreciation

Action: HOLD - Attractive international exposure

Allstate Corporation (ALL)

Metrics: P/E 6.8, P/B 2.15, P/E×P/B 14.6, Yield 1.91%, MCap $55.0B

Analysis:

• Valuation: Good value (14.6)
• Fundamentals: P&C insurer, catastrophe exposure
• Dividend: Moderate yield with growth potential
• Cycle: Insurance pricing cycle sensitive

Sell Triggers:

1. P/E×P/B exceeds 22.5
2. Major catastrophe losses impact earnings
3. Dividend growth stalls
4. 25%+ price appreciation

Action: HOLD - Quality at reasonable price

3. Near Threshold Stocks (P/E×P/B 18-22.5)

Lennar Corporation (LEN)

Metrics: P/E 12.8, P/B 1.47, P/E×P/B 18.8, Yield 1.54%, MCap $32.0B

Analysis:

• Valuation: Approaching threshold (18.8)
• Fundamentals: Homebuilder, interest rate sensitive
• Cycle: Housing market cyclical
• Economic: Tied to employment and mortgage rates

Sell Triggers:

1. P/E×P/B exceeds 22.5 (IMMEDIATE REVIEW)
2. Housing starts decline >15%
3. Mortgage rates increase significantly
4. 15%+ price appreciation

Action: MONITOR CLOSELY - Near sell threshold

Markel Group Inc. (MKL)

Metrics: P/E 12.9, P/B 1.44, P/E×P/B 18.6, Yield N/A, MCap $26.1B

Analysis:

• Valuation: Approaching threshold (18.6)
• Fundamentals: Insurance + investments (mini-Berkshire)
• Quality: Generally high-quality operation
• Valuation: Often commands premium

Sell Triggers:

1. P/E×P/B exceeds 22.5
2. Investment portfolio underperforms
3. Insurance combined ratio > 100%
4. 20%+ price appreciation

Action: MONITOR - Quality company but valuation full

Cross-Screen Analysis: High Confidence Stocks

Stocks Appearing in Multiple Screens

Allstate (ALL)

• Appears in: Quality Value, Large Cap Value
• Confidence: High (multiple screen validation)
• Action: HOLD - Validated by multiple methodologies

Petrobras (PBR/PBR-A)

• Appears in: Large Cap Value (top of list)
• Metrics: P/E 5.8, P/B 0.38, P/E×P/B 2.2, Yield 13.34%
• Risks: Political, commodity price, currency
• Action: SPECULATIVE HOLD - High risk/reward, monitor closely

Vale S.A. (VALE)

• Appears in: Large Cap Value
• Metrics: P/E 10.0, P/B 0.25, P/E×P/B 2.5, Yield 11.49%
• Analysis: Deep value, commodity cyclical
• Action: HOLD FOR VALUE - Significant margin of safety

Sector-Specific Considerations

1. Financials (Banks, Insurance)

• Monitor: Interest rates, credit quality, regulatory changes
• Sell Signals: Yield curve inversion, rising defaults, regulatory crackdown
• Examples: ALL, AEG, UNM, ITUB, BBD

2. Commodities (Steel, Mining, Energy)

• Monitor: Commodity prices, global demand, currency effects
• Sell Signals: Price declines >20%, demand slowdown, currency volatility
• Examples: GGB, TX, VALE, PBR, XOM

3. Real Estate (REITs)

• Monitor: Interest rates, occupancy rates, tenant health
• Sell Signals: Rising rates, declining occupancy, tenant bankruptcies
• Examples: VICI, NNN

4. Consumer Cyclicals

• Monitor: Consumer confidence, employment, interest rates
• Sell Signals: Recession indicators, consumer spending decline
• Examples: LEN, F, GM

Portfolio Construction Guidelines

Position Sizing Based on Confidence

Sector Allocation Limits

• Maximum 25% in any single sector
• Financials: Current screening shows concentration
• Commodities: Consider diversification
• Real Estate: Interest rate sensitivity

Geographic Diversification

• US: 60-70% (ALL, VICI, LEN, MKL)
• International: 30-40% (GGB, TX, AEG, SUZ, VALE, PBR)
• Emerging Markets: 10-20% (Brazilian stocks: GGB, SUZ, PBR, VALE)

Action Plan Summary

Immediate Actions (This Week)

1. Review portfolio for existing holdings matching screened stocks
2. Calculate P/E×P/B for all current holdings
3. Identify any holdings with P/E×P/B > 22.5
4. Document rationale for any sell decisions

Monthly Monitoring

1. Update valuations for screened stocks of interest
2. Check earnings for any concerning trends
3. Review dividends for safety
4. Assess market sentiment for euphoria signs

Quarterly Review

1. Deep dive into 2-3 top candidates
2. Financial statement analysis
3. Competitive position assessment
4. Portfolio rebalancing if needed

Risk Management Notes

High-Risk Considerations

1. Brazilian Stocks (GGB, SUZ, PBR, VALE):

   • Currency risk (BRL/USD)
   • Political risk
   • Commodity price volatility

2. High Dividend Stocks (TX 7.17%, VICI 6.33%, AEG 5.58%):

   • Yield sustainability
   • Payout ratio analysis required
   • Sector-specific risks

3. Cyclical Stocks (Steel, Mining, Homebuilders):

   • Economic cycle sensitivity
   • Timing considerations
   • Volatility expected

Mitigation Strategies

1. Position Sizing: Smaller positions for higher risk
2. Diversification: Across sectors and geographies
3. Monitoring Frequency: More frequent for higher risk
4. Stop-Loss Considerations: Mental or actual stops for speculative positions

Conclusion & Next Steps

Current Screening Highlights

1. Best Values: GGB (1.7), SUZ (2.3), TX (8.1) - Significant margin of safety
2. Quality Plays: VICI (11.9), ALL (14.6) - Good companies at fair prices
3. Warning Zone: LEN (18.8), MKL (18.6) - Monitor closely
4. Income Focus: High dividend stocks available but require careful analysis

Recommended Approach

1. Start Small: Initial positions at 1-2% for testing
2. Dollar-Cost Average: Consider gradual accumulation
3. Set Clear Triggers: Document sell conditions upfront
4. Maintain Discipline: Stick to Graham's principles

Final Graham Reminder

"The intelligent investor is a realist who sells to optimists and buys from pessimists."

Use this framework to make rational, disciplined sell decisions based on valuation, fundamentals, and opportunity cost - not emotion or market noise.

Document Version: 1.0 Analysis Date: 2025-12-03 Next Review: 2026-01-03 (Monthly) Quarterly Deep Dive: 2026-01-15 (Post Q4 earnings)