Graham concentrated on large caps for this strategy. In his words, "The large companies thus have a double advantage over the others. First, they have the resources in capital and brain power to carry them through adversity and back to a satisfactory earnings base. Second, the market is likely to respond with reasonable speed to any improvement shown."

The technique involves looking for the six or ten stocks in the Dow Jones Industrials with the lowest current or trailing P/E.  This is more or less the "Dogs of The Dow" approach. A similar, and largely preferable and superior technique (in my opinion) is to use the BMW method, a concept  introduced by BuildMWell on The Motley Fool.

The BMW method basically uses  a  "price at or below long-term (at least 30 year, but 16 or more can work)  low CAGR" technique to select potential stocks. I say "potential", since one always needs to do one's Due Diligence on any stocks thrown up by this method.

For example, I like to visit The BMW Screener which is a nifty tool provided by Denny Schlesinger. This screener interfaces into Mike Klein's BMW Charts. Let me look at a recent example, Pfizer (PFE). On the BMW Screener, PFE shows

PFE

Yahoo!

Pfizer Inc

20

19.08

13.96

2.37

-2.14

25.99

104.01

58.8

Basically this means that on the 20 year chart,  Pfizer has grown at an average of 19.08% per annum, but is now showing a 20 year growth of 13.96%.

We can infer from this that Pfizer is well below its average 20 year price growth or CAGR and its current price is in fact more than  two standard deviations from the mean CAGR. In other words, PFE's current price is outside (on the low site) where more than 95% of the prices are in the last 20 years. Since the price is currently $25.99, if we assume PFE will take 3 years to return to the mean CAGR of 19.08%, this will imply a price of $104.01 or a Return Factor of 2.37 over  the current price, or 58.8% annualized gain each year for the next three years, not including dividends. For a graphical representation, click on the ticker for PFE within the BMW Screener or go directly to Mike Klein's 20 Year PFE Chart. (Note the top chart on the page is a Logarithmic chart, scroll down the page for the linear chart which shows a CAGR curve)

What about Due Diligence? We can look in various places for this information. For example Yahoo! Finance, Morningstar, etc. OR we can look at The Graham Investor Charts and enter the ticker PFE.

This will return a page of useful charts which show price CAGRs, Earnings CAGR, Revenue CAGR, Profit and Stockholder Equity CAGR for PFE. The key here is to look for:

1. A stock with its Price below the -2 RMS value on the screener.
   
2. Preferably (but not essential) a sharp fall in the stock price of late.
   
3. Smooth CAGR growth, consistent increase of the EPS, Revenue, Profit, Equity values.
4. Price CAGR % LOWER than EPS CAGR %; implying that price is lagging earnings growth.
5. Solid fundamentals, but maybe some adverse news surrounding the company that has made it temporarily unpopular with investors.

The intention is to purchase quality large-cap or mid-cap stocks at or below the long-term low CAGR and hold them till they at least return to the long-term average CAGR, typically within 2-4 years. This is a good example of a "Buy Low, Sell High" strategy. Frequently, BMW stocks pay dividends, and the advantage of buying at the long-term low CAGR is that one locks in a dividend yield at or close to the maximum.

In summary, the BMW Method can help you emulate Graham's "Relatively Unpopular Large Company" technique by allowing you to accumulate a portfolio of ignored or beaten-down quality large stocks at bargain prices.