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 have selected the best companies trading 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 22 companies meeting these criteria. The full list can be found near the end of this article; however, to cut down on length, I have selected the 10 which 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 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.
Aspen Insurance Holdings Ltd. (AHL, Financial)
Aspen Insurance Holdings Ltd. 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 should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.19 in 2012 to an estimated $4.51 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.7% 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 Aspen Insurance Holdings Ltd. revealed the company was trading below its Graham Number of $82.44. The company pays a dividend of 86 cents per share for a yield of 1.6%. Its PEmg (price over earnings per share) was 11.91, 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)
MetLife Inc. 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 should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $2.37 in 2012 to an estimated $4.04 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.75% annual earnings growth over the next seven to 10 years. As a result, the valuation model 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 $78.35. The company pays a dividend of $1.55 per share for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg was 14.01, 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)
Citigroup Inc. 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 should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg  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 valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
Equity Residential (EQR, Financial)
Equity Residential qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $2.15 in 2012 to an estimated $5.79 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.39% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Equity Residential revealed the company was trading below its Graham Number of $90.07. The company pays a dividend of $2.11 per share for a yield of 3.2%, putting it among the best dividend paying stocks today. Its PEmg was 11.29, below the industry average of 34.03, 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 $-24.85. (See the full valuation)
Capital One Financial Corp. (COF, Financial)
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 should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg 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 valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
Navient Corp. (NAVI, Financial)
Navient 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 and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg  from 63 cents in 2012 to an estimated $2.39 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.25% annual earnings loss over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Navient Corp. revealed the company was trading below its Graham Number of $21.98. The company pays a dividend of 64 cents per share for a yield of 4.5%, putting it among the best dividend paying stocks today. Its PEmg was 6.01, below the industry average of 19.87, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
Lincoln National Corp. (LNC, Financial)
Lincoln National 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 should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg 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 valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
Baxter International Inc. (BAX, Financial)
Baxter International Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has no initial concerns. As a result, all value investors should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $3.6 in 2012 to an estimated $5.21 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.38% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Baxter International Inc. revealed the company was trading below its Graham Number of $56.99. The company pays a dividend of 48 cents per share for a yield of 1%. Its PEmg was 9.25, below the industry average of 40.07, 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 $-1.18. (See the full valuation)
Aflac Inc. 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 should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg  from $4.72 in 2012 to an estimated $6.27 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.58% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Aflac Inc. revealed the company was trading below its Graham Number of $87.87. The company pays a dividend of $1.62 per share for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg was 11.66, 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)
Starwood Property Trust Inc. (STWD, Financial)
Starwood Property Trust Inc. 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 should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $1.17 in 2012 to an estimated $1.98 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.4% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Starwood Property Trust Inc. revealed the company was trading below its Graham Number of $27.64. The company pays a dividend of $1.92 per share for a yield of 8.6%, putting it among the best dividend paying stocks today. Its PEmg was 11.3, below the industry average of 34.03, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
The full list
Clicking on the company name will take you to the company's latest valuation by ModernGraham.
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 Inc. | D | 8/7/2016 | --- | $69.41 | --- | --- | 2.33% |
| AHL | Aspen Insurance Holdings Ltd. | E | 12/13/2016 | --- | $53.40 | --- | --- | 1.61% |
| AIG | American International Group Inc. | E | 8/25/2016 | --- | $66.30 | --- | --- | 1.81% |
| ARW | Arrow Electronics Inc. | E | 7/3/2016 | --- | $71.78 | --- | --- | 0.00% |
| BAC | Bank of America Corp. | E | 7/14/2016 | --- | $22.66 | --- | --- | 0.88% |
| BAX | Baxter International Inc. | D | 8/16/2016 | --- | $44.72 | --- | --- | 1.07% |
| C | Citigroup Inc. | E | 7/19/2016 | --- | $59.75 | --- | --- | 0.33% |
| COF | Capital One Financial Corp. | E | 7/6/2016 | --- | $89.67 | --- | --- | 1.78% |
| DHI | D.R. Horton Inc. | E | 8/14/2016 | --- | $28.04 | --- | --- | 1.07% |
| EQR | Equity Residential | D | 8/21/2016 | --- | $64.05 | --- | --- | 3.29% |
| LEN | Lennar Corp. | E | 11/19/2016 | --- | $43.42 | --- | --- | 0.37% |
| LNC | Lincoln National Corp. | E | 5/20/2016 | --- | $66.39 | --- | --- | 1.66% |
| MET | MetLife Inc. | E | 12/13/2016 | --- | $54.37 | --- | --- | 2.85% |
| MNST | Monster Beverage Corp. | E | 7/27/2016 | --- | $44.50 | --- | --- | 0.00% |
| NAVI | Navient Corp. | E | 8/31/2016 | --- | $16.37 | --- | --- | 3.91% |
| PHM | PulteGroup Inc. | E | 7/18/2016 | --- | $18.83 | --- | --- | 1.81% |
| PVH | PVH Corp. | D | 8/14/2016 | --- | $91.98 | --- | --- | 0.16% |
| RF | Regions Financial Corp. | E | 6/27/2016 | --- | $14.20 | --- | --- | 1.69% |
| SANM | Sanmina Corp. | E | 12/5/2016 | --- | $35.95 | --- | --- | 0.00% |
| STI | SunTrust Banks Inc. | E | 8/25/2016 | --- | $55.27 | --- | --- | 1.74% |
| STWD | Starwood Property Trust Inc. | E | 8/25/2016 | --- | $21.90 | --- | --- | 8.77% |
| TRV | Travelers Companies Inc. | D | 12/1/2016 | --- | $121.60 | --- | --- | 1.60% |
Disclosure:Â The author held a long position in Starwood Property Trust 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.Â
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