John Reese — editor of Validea — selects stocks for his "Hot List" portfolio based on the time-tested strategies of legendary investors. Sanderson Farms (SAFM) earns a 100% score based on the investing strategy of value investor Benjamin Graham.

Sanderson Farms is a poultry processing company. The company is engaged in the production, processing, marketing and distribution of fresh and frozen chicken.

SAFM is neither a technology nor financial Company, and therefore this methodology is applicable. The investor must select companies of "adequate size".

This includes companies with annual sales greater than $340 million. SAFM's sales of $2.8 billion, based on trailing 12 month sales, pass this test.

The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. SAFM's current ratio of 4.14 passes the test.

For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities).

Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for SAFM is zero, while the net current assets are $465.1 million. SAFM passes this test.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15.

Stocks with moderate P/Es are more defensive by nature. Sanderson Farm's P/E of 11.37 (using the current PE) passes this test.

Under the Benjamin Graham strategy, the Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. SAFM's Price/Book ratio is 1.81, while the P/E is 11.37. As such, SAFM passes the Price/Book test.

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