There are several sources of return that can be achieved by investing in common stocks. Growth of the business you are considering investing in is one source. The dividend and dividend growth is a second component of total return.

However, when you invest with a margin of safety, you’re investing in the business when it is available at a discount to its intrinsic value based on cash flows and earnings.

Consequently, the price-earnings ratio is technically below value and therefore as it expands to intrinsic value the P/E ratio expansion provides the final source of return. But the icing on the cake is the fact that the margin of safety provided by low valuation serves as a turbocharger of sorts to your position.

Potentially earning a higher rate of return and below levels of risk defies conventional wisdom which states that you must take on higher risk to get a higher rate of return. Prudent, time-tested value investing turns that notion on its head.

In closing, these research candidates provide a quintessential examples of Warren Buffett’s sage advice: “be fearful when others are greedy and greedy when others are fearful.”

Although it is true that value comes from stocks becoming temporarily unpopular, it simultaneously becomes an opportunity when fundamentals remain intact or improve. I believe each of these research candidates provides that opportunity. Choose wisely.

Griffon Corp (GFF), Abbvie (ABBV), AmerisourceBergen (ABC), Ameriprise Financial (AMP), Best Buy (BBY), Bristol Myers Squibb (BMY), Cigna Corp (CI), Cummins Inc (CMI), Fortune Brands (FBHS), FedEx (FDX), Magna International (MGA), Altria Group (MO), Omnicom Group (OMC), Progress Software (PRGS), Qualcomm (QCOM), Stanley Black & Decker (SWK), Skyworks Solutions (SWKS), UGI Corp (UGI), Walgreens Boots Alliance (WBA), Western Union (WU).

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— Chuck Carnevale

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