Top Stock Picker Follows Graham and Dodd

“For the second consecutive year, the top stock picker is a practitioner of the valuation model introduced in the 1930s by Columbia University professors Benjamin Graham and David Dodd,” writes Bloomberg’s Matthew Winkler.

That stock picker is J. David Wagner, vice president of Baltimore-based T. Rowe Price Group and manager of the T. Rowe Price Small-Cap Value Fund, which returned 30 percent last year (more than double that of the S&P 500):

Winkler writes, “Wagner’s winning strategy depended on identifying companies too small for most analysts to acknowledge.” Wagner’s model, he says, considers earnings, dividends, cash flow and book value to find companies trading at less than their net worth. Some of his fund’s largest gains were in health-care stocks, even though they represented the most underweighted industry. At 26 percent of holdings, financials represent the largest share of the fund and, according to the article, the post financial crisis stressors on banks including increased capital requirements, regulatory oversight and low interest rates created what Wagner called a “formula for very cheap stocks, very out of favor, a lot of negative sentiment and then a period of poor performance.”

While the post-election market buzz also helped Wagner’s fund, he says his attention wasn’t focused there: “It’s not uncommon for us to get paid in unexpected times in unexpected ways.”