Is Whirlpool Cheap According to Graham?

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I recently spent some time dissecting Benjamin Graham's The Intelligent Investor, the seminal book on value investing. Along the way, I talked about the Graham number as a means of valuation when it comes to stocks. The formula is pretty straightforward: Multiply earnings per share by book value per share, then multiply that by 22.5, and finally take the square root. The result, in dollars, is the Graham number.

However, a quick check can help determine whether or not a company might be worthy of a look using the teachings of Graham. He said that in an ideal situation, the P/E ratio and P/B ratio multiplied together should not exceed 22.5, with a maximum P/E ratio of 15 and P/B of 1.5. With that in mind, I screened the stocks of the S&P 500 that met those requirements and was presented with 53 companies. I will be making a CAPScall on most of these companies after comparing them to competitors and their current value in relation to their Graham numbers. Up next is appliance maker Whirlpool (NYS: WHR) .

Who are they?
As a producer of large appliances, Whirlpool's performance has suffered as of late. Nevertheless, as the economy continues to recover, trends should start to reverse and return it to its former glory. Furthermore, as the largest appliance company in the world, it stands to benefit from increasing disposable income from customers in developing markets.

What's it worth?
Of the seven stocks I have put through Graham number analysis, Whirlpool is the first to be within 10% of its Graham number. Nevertheless, with two competitors currently trading above their Graham numbers, and one with negative earnings, making it impossible to compute the number, Whirlpool is doing pretty well in its sector. Only National Presto (NYS: NPK) looks slightly cheaper:

Company

EPS (TTM)

Book Value Per Share (MRQ)

Graham Number

Recent Price

Whirlpool$4.99$54.69$78.36$73.57
iRobot Corporation (NAS: IRBT) )$1.44$8.93$17.01$25.49
Lennox International (NYS: LII) $1.65$9.20$18.48$38.75
National Presto Industries$8.26$46.96$93.42$77.86
Spectrum Brands Holdings (NYS: SPB) ($0.81)$19.36N/A$29.15

Source: Yahoo! Finance and author's calculations.

Robot maker iRobot came back to Earth a bit after lackluster earnings, but the manufacturer of the Roomba vacuum and other helpful robots still appears overvalued according to its Graham number. Further guidance for a less than stellar 2012 should also give investors pause. Lennox is more known for its HVAC solutions than traditional appliances like Whirlpool, but it is feeling the hurt caused by the economic downturn as well, as well as an increase in freight and commodity prices.

Finally, National Presto and Spectrum Brands tend to focus on smaller appliances, with National Presto making items like mixers, can openers, and other small appliances and Spectrum Brands focusing on batteries and personal shaving appliances. Both aren't as affected by the housing downturn that has hurt appliance makers, though they have felt the pinch because consumers aren't spending nearly as much of their disposable income on new products, instead replacing products only when they break.

Accountability time
Whirlpool is a strong company, and will benefit should the economy continue to recover. Therefore, I will be placing a "thumbs up" over on my CAPS page in order to track this call and keep myself accountable, though it will be capped out at its current Graham number. I will also be adding Whirlpool to My Watchlist to stay up to date on anything that may cause me to change my opinion of the company.

At the time this article was published Fool contributor Robert Eberhard holds no position in any company mentioned. Click here to see his holdings and a short bio or follow him on Twitter. The Motley Fool owns shares of National Presto Industries. Motley Fool newsletter services have recommended buying shares of iRobot. 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.

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