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Benjamin Clark
Benjamin Clark
Articles (298)  | Author's Website |

Stocks Trading Below Their Graham Number - June

Undervalued stock ideas for value investors

One popular approach to investing based on Benjamin Graham's methods is to use the so-called "Graham Number." There are some important differences between the Graham Number and the Graham Formula, but using the Graham Number is definitely useful even if the investor only uses it as a screening tactic.

I've selected the best companies reviewed by ModernGraham that trade below their Graham Number. The companies selected all are found suitable for the Defensive Investor and/or the Enterprising Investor, and have been valued as undervalued based on the ModernGraham valuation model. Further, the overall screen found 41 companies meeting these criteria, and the full list can be found near the end of this article; however, to cut down on the length of the post, I've selected the 10 that trade furthest below their Graham Number.

Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

These companies have demonstrated strong financial positions through passing the rigorous requirements of the ModernGraham Investor and show potential for capital growth based on their current price in relation to intrinsic value. As such, these Graham Number stocks may be a great investment if they prove to be suitable for your portfolio after your own additional research.

It should be noted that I only recently began tracking Graham Number data, though I do have the data for over half of the ModernGraham universe.

Lincoln National Corporation (NYSE:LNC)

Lincoln National Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last 10 years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.04 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.12% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
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Citigroup Inc. (NYSE:C)

Citigroup qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth or stability over the last 10 years along with the inconsistent dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $6.47 in 2011 to an estimated gain of $3.81 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.66% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
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Metlife Inc. (NYSE:MET)

MetLife qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth or stability over the last 10 years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.02 in 2011 to an estimated $4.26 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.60% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
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Capital One Financial Corp. (NYSE:COF)

Capital One Financial qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last 10 years along with the inconsistent dividend record. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $5.15 in 2012 to an estimated $7.17 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.28% annual earnings loss over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
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Regions Financial Corp. (NYSE:RF)

Regions Financial is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last 10 years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from losses of 69 cents in 2012 to an estimated 77 cents for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.31% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
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Unum Group (NYSE:UNM)

Unum Group qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.3 in 2012 to an estimated $3.13 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.91% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
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American International Group Inc. (NYSE:AIG)

American International Group is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last 10 years and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from losses of $109.06 in 2011 to an estimated $4.92 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.04% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
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KeyCorp (NYSE:KEY)

KeyCorp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last 10 years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from 8 cents in 2012 to an estimated $1 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.27% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
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WestRock Co. (NYSE:WRK)

WestRock qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the low current ratio, while the Enterprising Investor's only initial concern is the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.97 in 2012 to an estimated $3.28 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.64% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
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Fossil Group Inc. (NASDAQ:FOSL)

Fossil Group is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size and the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.34 in 2011 to an estimated $5.66 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.21% annual earnings loss over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
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The full list

Clicking on the company name will take you to the company's latest valuation.

For the investor type, a "D" indicates the company is suitable for the Defensive Investor, an "E" indicates the company is suitable for the Enterprising Investor, and an "S" indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
AFL AFLAC Incorporated D 2/4/2016 --- $67.33 --- --- 2.38%
AIG American International Group Inc E 2/16/2016 --- $48.79 --- --- 2.07%
ALL Allstate Corp E 5/18/2016 --- $66.06 --- --- 1.86%
AMP Ameriprise Financial, Inc. E 6/14/2016 --- $85.52 --- --- 3.13%
ARW Arrow Electronics, Inc. E 12/11/2015 --- $60.01 --- --- 0.00%
BBBY Bed Bath & Beyond Inc. D 6/14/2016 --- $41.86 --- --- 0.00%
BBT BB&T Corporation E 5/17/2016 --- $33.05 --- --- 3.27%
BEN Franklin Resources, Inc. D 1/28/2016 --- $30.67 --- --- 2.15%
BK Bank of New York Mellon Corp E 1/8/2016 --- $35.88 --- --- 2.42%
BWA BorgWarner Inc. E 2/3/2016 --- $27.69 --- --- 1.88%
C Citigroup Inc E 12/10/2015 --- $38.48 --- --- 0.52%
CMA Comerica Incorporated E 2/15/2016 --- $36.96 --- --- 2.27%
COF Capital One Financial Corp. E 1/29/2016 --- $58.15 --- --- 2.75%
DFS Discover Financial Services D 2/9/2016 --- $50.71 --- --- 0.55%
F Ford Motor Company E 1/7/2016 --- $12.16 --- --- 4.93%
FITB Fifth Third Bancorp E 1/5/2016 --- $16.26 --- --- 3.20%
FMC FMC Corp D 1/29/2016 --- $42.21 --- --- 1.56%
FOSL Fossil Group Inc E 2/16/2016 --- $26.24 --- --- 0.00%
HBAN Huntington Bancshares Incorporated E 6/27/2016 --- $8.09 --- --- 3.21%
IVZ Invesco Ltd. D 1/25/2016 --- $23.16 --- --- 4.66%
JPM JPMorgan Chase & Co. D 1/25/2016 --- $57.61 --- --- 3.06%
KEY KeyCorp E 6/24/2016 --- $10.29 --- --- 2.92%
LEN Lennar Corporation E 5/13/2016 --- $43.74 --- --- 0.37%
LNC Lincoln National Corporation E 5/20/2016 --- $35.50 --- --- 3.10%
MET Metlife Inc E 2/3/2016 --- $36.53 --- --- 4.11%
MTB M&T Bank Corporation E 12/10/2015 --- $108.78 --- --- 2.57%
PBCT People's United Financial, Inc. D 6/20/2016 --- $13.84 --- --- 4.84%
PFG Principal Financial Group Inc D 3/21/2016 --- $38.14 --- --- 3.99%
PHM PulteGroup, Inc. E 1/6/2016 --- $18.01 --- --- 1.89%
PNC PNC Financial Services Group Inc D 6/24/2016 --- $77.88 --- --- 2.62%
PWR Quanta Services Inc E 2/10/2016 --- $21.72 --- --- 0.00%
RF Regions Financial Corp E 6/27/2016 --- $7.91 --- --- 3.03%
STI SunTrust Banks, Inc. E 2/17/2016 --- $37.84 --- --- 2.54%
STT State Street Corp E 6/25/2016 --- $50.79 --- --- 2.68%
STWD Starwood Property Trust, Inc. E 2/17/2016 --- $20.08 --- --- 9.56%
TRV Travelers Companies Inc D 5/18/2016 --- $110.35 --- --- 2.21%
UNM Unum Group D 3/22/2016 --- $29.99 --- --- 2.40%
USB U.S. Bancorp D 2/9/2016 --- $38.69 --- --- 2.64%
WDC Western Digital Corp D 2/11/2016 --- $42.18 --- --- 4.74%
WFC Wells Fargo & Co D 6/27/2016 --- $45.01 --- --- 3.33%
WRK WestRock Co D 1/26/2016 --- $35.87 --- --- 4.18%

Disclaimer:

The author held a long position in Ford Motor Company, Invesco Ltd, People's United Financial Inc, Western Digital Corp, and WestRock Co but did not hold a position in any other company mentioned in this article at the time of publication and had no specific intention of changing that position within the next 72 hours; however, the author does intend to make some trades in the next 72 hours and may select a company from this list. See my current holdings here. This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions. Please also read our full disclaimer.

About the author:

Benjamin Clark
Benjamin is one of TipRank's top bloggers. He is the founder of ModernGraham.com, a value investing website devoted to the study and modernization of the teachings of Benjamin Graham.

Visit Benjamin Clark's Website


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