Earlier today I was feelingÂ kinda lonely. ðŸ˜¥Â So I decided to buy some shares.
Ah yes. It sure feels goodÂ to have a bit of company. ðŸ˜„Â And that company is calledÂ Costco.

In this series of blog posts I’ll explain how I determine which stocks to add to my portfolio based on strategic valuation methods. ðŸ™‚

## How to Value a Stock: The Graham FormulaÂ

Today, we’ll look at one of the most common formulas to determine the intrinsic value of a company; it’s call the Benjamin Graham Formula, named after the famous value investor who taught Warren Buffett. ðŸ™‚

The Graham formula looks like the following:

This should give us an idea of how much we should pay to buy a stock. Let’s go over the variables.

V = Intrinsic value, or what the stock should be worth today.
EPS = Trailing twelve months earningsÂ per share.
8.5 = P/E base for a no-growth company.
g = Expected long term earnings growth rate.

## Is Costco Stock Undervalued or Overvalued?

This formula works best with blue-chip, large cap, value stocks. We will use Costco Wholesale Corporation as an example since I just purchased someÂ recently. ðŸ™‚

So to find out the intrinsic value of CostcoÂ (NASDAQ:COST) we need to look up the earnings per share (EPS). This information can be found on Google Finance. Â We see that it’s \$5.41.

Next in the formula, weÂ need the “g” value. We can find this information on the Nasdaq.com website, and see that it’s 10.71%.

Finally we can now plug everything into the formula to see the result.

So as of today, March 23rd, Costco should be worth around \$162 per share according to the Benjamin Graham formula.

But of course the stock is actually trading at \$167. This means Costco is currently overvalued because its shares areÂ trading at a premium compared to the fair value we just calculated.

Nevertheless, I still went ahead and purchased 10 shares of Costco this morning. The 3% premium I paid over the intrinsic value isn’t a big deal for me. Plus Costco recently announced an increase of membership fees to \$60 per year. Like most other Costco shoppers I have decided to keep renewing my membership with them. But at least now I own 10 Costco shares, which entitles me (as a shareholder) to receive US \$54 of after tax profits every year. This amount converted into Canadian dollars is more than enough to cover the expense of my annual Costco membership, haha. ðŸ˜€

Last week I shared a couple of tips to buy food on the cheap. Now I will reveal another way to save.

I shop at Costco. Buying groceries in bulk is a great way to save money. A tray of 48 pork sausages only costs \$13. Three loaves of bread for only \$7. They always have food items on special as well. For bulk perishableÂ items I would split them up into smaller portions and freeze them.Â Below are some groceries I bought from Costco this year. Some items have already been partially consumed. By the way, I don’t recommend reading the rest of this post on an empty stomach.

It costs \$55 a year for theÂ privilegeÂ of shopping there but you get two Costco cards, and it’s totally worth it if you split the cost with a friend. It’s good to know where to buy cheap groceries like thoseÂ ribsÂ from the previous post for only \$3.08. And all those food from the produce market; 2 potatoes for just 65 cents. But what kind of recipes can we prepare from these cheap ingredients? Well by mixing together different items from different stores we can make some prettyÂ cheap, healthy, and delicious dishes. I’m not a very good cook, but I’ve been taking pictures over the last week of what I’ve been eating at home to demonstrate some simple recipe ideas anyone can make.

As you can see these dishes used the ingredients mentioned earlier in this post and in the one before so the numbers are all calculated based on real prices. Most meals like these only cost around \$1 to make. So if we eat 3 meals a day, plus a snack, then each month our grocery bill would only be around \$100. But in reality it may fluctuate because sometimes we can treat ourselves and spend more. But other times we might skip a meal or go to a restaurant instead which won’t count as grocery spending.Â The point is if we wanted to, we could live quite comfortably on \$100 a month for all our food needs. Not bad, considering the average Canadian spends over \$300 a month for all food expenses, (includes eating out.)

My BMI is around 23 so I’m not underweight. I normally consume around 1800 calories a day so I’m notÂ malnourished either. I would say my diet is pretty balanced overall. So spending less doesn’t necessarily mean depriving ourselves of anything important.Â Last week I mentioned the average consumer spends about \$205 a month on grocery shopping but I only spend half as much as that. Now you know how. And you can do the same (^o^). Just remember these 3 simple suggestions. 1) Buy fruit and veggies from small produce markets. 2) Buy meat products when they go on sale. 3) Buy everything else from a wholesaler. Â Just because we live in an expensive city doesn’t mean we have to spend a lot of money to enjoy what it has to offer (^_-)