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 31 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.
Metlife Inc. (MET, Financial)
MetLife is a provider of life insurance, annuities, employee benefits and asset management.
Metlife 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 $2.54 in 2012 to an estimated $4.31 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.53% 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.
At the time of valuation, further research into Metlife Inc revealed the company was trading below its Graham Number of $86.55. The company pays a dividend of $1.53 per share, for a yield of 3.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share - ModernGraham) was 9.56, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
Lincoln National Corporation (LNC, Financial)
Lincoln National Corporation is a holding company, which operates insurance and retirement businesses through subsidiary companies.
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)
Citigroup Inc. (C, Financial)
Citigroup is a financial services holding company.
Citigroup 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 $-2.31 in 2012 to an estimated $4.1 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.16% 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)
Capital One Financial Corp. (COF, Financial)
Capital One Financial Corporation is a financial services holding company.
Capital One Financial Corp. 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 $5.15 in 2012 to an estimated $7.13 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.05% 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)
Unum Group (UNM, Financial)
Unum Group is a provider of disability insurance products in the U.S. and the U.K.
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)
Regions Financial Corp. (RF, Financial)
Regions Financial Corporation is a financial holding company.
Regions Financial Corp. 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 $-0.69 in 2012 to an estimated $0.77 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)
Bank of America Corp. (BAC, Financial)
Bank of America Corporation is a bank holding and financial holding company.
Bank of America 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 1 cent in 2012 to an estimated 92 cents for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.02% 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)
Western Digital Corp. (WDC, Financial)
Western Digital Corporation is a developer, manufacturer and provider of data storage solutions that enable consumers, businesses, governments and other organizations to create, manage, experience and preserve digital content.
Western Digital does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last 10 years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.63 in 2013 to an estimated $3.71 for 2017. This level of demonstrated earnings growth does not support the market's implied estimate of 2.03% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Western Digital Corp revealed the company was trading below its Graham Number of $57.8. The company pays a dividend of $2 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share - ModernGraham) was 12.57, which was below the industry average of 22.64, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-34.99. (See the full valuation)
American International Group Inc. (AIG, Financial)
American International Group is an insurance company.
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 $-56.58 in 2012 to an estimated $3.64 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.83% 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.
At the time of valuation, further research into American International Group Inc revealed the company was trading below its Graham Number of $82.15. The company pays a dividend of $1.2 per share, for a yield of 2% Its PEmg (price over earnings per share - ModernGraham) was 16.16, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
SunTrust Banks Inc. (STI, Financial)
SunTrust Banks is a bank holding company and a financial holding company.
SunTrust Banks 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 $1.02 in 2012 to an estimated $3.29 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.24% 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.
At the time of valuation, further research into SunTrust Banks, Inc. revealed the company was trading below its Graham Number of $59.54. The company pays a dividend of 96 cents per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share - ModernGraham) was 12.98, which was below the industry average of 13.43, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
The Full List
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 | 8/7/2016 | --- | $72.99 | --- | --- | 2.22% |
| AIG | American International Group Inc | E | 8/25/2016 | --- | $58.94 | --- | --- | 2.04% |
| ARW | Arrow Electronics, Inc. | E | 7/3/2016 | --- | $65.69 | --- | --- | 0.00% |
| BAC | Bank of America Corp | E | 7/14/2016 | --- | $15.53 | --- | --- | 1.29% |
| BAX | Baxter International Inc | D | 8/16/2016 | --- | $47.10 | --- | --- | 1.02% |
| BK | Bank of New York Mellon Corp | E | 8/8/2016 | --- | $40.53 | --- | --- | 1.68% |
| C | Citigroup Inc | E | 7/19/2016 | --- | $46.72 | --- | --- | 0.43% |
| COF | Capital One Financial Corp. | E | 7/6/2016 | --- | $68.77 | --- | --- | 2.33% |
| EQR | Equity Residential | D | 8/21/2016 | --- | $65.61 | --- | --- | 3.22% |
| FITB | Fifth Third Bancorp | E | 7/2/2016 | --- | $19.59 | --- | --- | 2.65% |
| HBAN | Huntington Bancshares Incorporated | E | 6/27/2016 | --- | $9.60 | --- | --- | 2.71% |
| JBL | Jabil Circuit, Inc. | E | 7/22/2016 | --- | $21.08 | --- | --- | 1.52% |
| JPM | JPMorgan Chase & Co. | D | 7/24/2016 | --- | $66.07 | --- | --- | 2.72% |
| KEY | KeyCorp | E | 6/24/2016 | --- | $12.26 | --- | --- | 2.45% |
| LEN | Lennar Corporation | E | 5/13/2016 | --- | $47.19 | --- | --- | 0.34% |
| LNC | Lincoln National Corporation | E | 5/20/2016 | --- | $46.43 | --- | --- | 2.37% |
| MET | Metlife Inc | E | 8/5/2016 | --- | $41.31 | --- | --- | 3.70% |
| PBCT | People's United Financial, Inc. | D | 6/20/2016 | --- | $15.81 | --- | --- | 4.24% |
| PFG | Principal Financial Group Inc | D | 3/21/2016 | --- | $47.99 | --- | --- | 3.17% |
| PHM | PulteGroup, Inc. | E | 7/18/2016 | --- | $21.57 | --- | --- | 1.58% |
| PNC | PNC Financial Services Group Inc | D | 6/24/2016 | --- | $85.87 | --- | --- | 2.38% |
| R | Ryder System, Inc. | D | 7/2/2016 | --- | $64.57 | --- | --- | 2.48% |
| RF | Regions Financial Corp | E | 6/27/2016 | --- | $9.65 | --- | --- | 2.49% |
| STI | SunTrust Banks, Inc. | E | 8/25/2016 | --- | $42.73 | --- | --- | 2.25% |
| STWD | Starwood Property Trust, Inc. | E | 8/25/2016 | --- | $22.43 | --- | --- | 8.56% |
| TRV | Travelers Companies Inc | D | 5/18/2016 | --- | $117.75 | --- | --- | 2.07% |
| UNM | Unum Group | D | 3/22/2016 | --- | $34.60 | --- | --- | 2.08% |
| WDC | Western Digital Corp | D | 2/11/2016 | --- | $46.44 | --- | --- | 4.31% |
| WFC | Wells Fargo & Co | D | 6/27/2016 | --- | $48.38 | --- | --- | 3.10% |
| WRK | WestRock Co | D | 8/4/2016 | --- | $47.07 | --- | --- | 3.08% |
| ZION | Zions Bancorp | E | 6/28/2016 | --- | $29.42 | --- | --- | 0.82% |
Disclaimer:
The author held a long position in People's United Financial Inc, Starwood Property Trust, 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. This article first appeared on ModernGraham.
