Do you consider yourself a value investor? We ran a screen with that perspective in mind.
We began by screening the basic materials sector for high-growth stocks, with 5-year projected EPS growth above 15%.
Then we screened that universe for those that appear undervalued relative to the Graham Number. The Graham Number is a measure of maximum fair value created by the "godfather of value investing" Benjamin Graham.
It is based off of a stock's EPS and book value per share (BVPS).
Graham Number = SQRT(22.5 x TTM EPS x MRQ BVPS)
The equation assumes that P/E should not be higher than 15 and P/BV should not be higher than 1.5. Stocks trading well below their Graham Number may be undervalued.
Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.
List sorted by potential upside implied by the Graham Number.
1. Atwood Oceanics, Inc. (ATW): Engages in offshore drilling, and the completion of exploratory and developmental oil and gas wells. Market cap at $2.97B, most recent closing price at $45.38. 5-year projected EPS growth at 20%.
Diluted TTM earnings per share at 4.14, and a MRQ book value per share value at 29.63, implies a Graham Number fair value = sqrt(22.5*4.14*29.63) = $52.54. Based on the stock's price at $44.83, this implies a potential upside of 17.19% from current levels.
2. Energy Transfer Partners LP (ETP): Engages in the natural gas midstream, and intrastate transportation and storage businesses in the United States. Market cap at $12.9B, most recent closing price at $42.92. 5-year projected EPS growth at 15.23%. Diluted TTM earnings per share at 4.35, and a MRQ book value per share value at 27.38, implies a Graham Number fair value = sqrt(22.5*4.35*27.38) = $51.77. Based on the stock's price at $42.36, this implies a potential upside of 22.21% from current levels.
*BVPS and EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.