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Essential Takeaways From Chapter 13 of The Intelligent Investor: A Comparison of Four Listed Companies

The 13th chapter of "The Intelligent Investor" presents an analysis of four companies to provide practical insights.

Graham bases his analysis on four prevalent live examples at the time of writing, including:

  • ELTRA Corp
  • Emerson Electric Co.
  • Emery Air Freight
  • Emhart Corp.

Graham explains that the most striking fact about these companies is that the current price/earnings ratios vary more widely than their operating performance or financial condition. He further clarifies that this happens because of the "superior growth" of the profits of the favored companies.

Graham analyzes these companies by looking at key ratios that relate to performance and price. He establishes six criteria for analysis:

  1. profitability
  2. stability
  3. growth
  4. financial position
  5. dividends
  6. price history

Graham concludes that careful investors should avoid overenthusiasm for good performance in earnings and in the stock market.

Graham considers Emerson Electric to be a "goodwill giant" and emphasizes that high valuations entail high risks.

On the other hand, Emery Air Freight has a price-earnings ratio of almost 40 times, which means that conservative investors must work through potential adverse developments before committing.

ELTRA and Emhart, according to Graham, are solid companies with “sufficient value behind their price." These companies have long histories of healthy returns on capital and stability of profits.

Graham emphasizes that the sound basis for preferring ELTRA and Emhart to Emerson and Emery would be the client’s conclusion that he preferred value-type investments to glamour-type investments.

As for the four companies' histories since 1973, Emerson Electric Co. still exists and is listed on the New York Stock Exchange.

Emery Air Freight, unfortunately, encountered turbulence, and its operations were shut down in August 2001 due to unsatisfactory fleet maintenance.

ELTRA Corp was sold to a firm that became the Allied Signal Corp in 1980, which was later purchased by Honeywell Inc.

Emhart Corp. was acquired by Black & Decker in 1989, and several of its brand names were subsequently sold to other entities.

In summary, Graham focused on six key issues when analyzing companies in Chapter 13: profitability, stability, growth, financial position, dividends, and price history. He advises investors to avoid overenthusiasm and carefully evaluate potential adverse developments before making a commitment.





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