3 Warren Buffett Holdings Undervalued Relative To The Graham Number

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by: Kapitall

Do you consider yourself a value investor? If so, we ran a screen that might interest you.

We screened the holdings of the famous value investor Warren Buffett for those stocks 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, who also happens to be the mentor of Warren Buffett. It is based on 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.

Below are the one-year returns of the stocks that made the list. (For an interactive version of this chart, click on the image below.)

Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.

(The list below is sorted by potential upside implied by the Graham Number.)

1. The Washington Post Company (WPO): It operates as a diversified education and media company in the United States and internationally. It has a market cap of \$2.72 billion; its most recent closing price was \$360. Diluted TTM earnings per share at 31.68 and a MRQ book value per share value at 358.19 imply a Graham Number fair value = sqrt(22.5*31.68*358.19) = \$505.29. Based on the stock's price at \$365.03, this implies a potential upside of 38.42% from current levels.

2. Wells Fargo & Company (NYSE:WFC): It provides retail, commercial, and corporate banking services primarily in the United States. It has a market cap of \$184.57 billion; its most recent closing price was \$34.33. Diluted TTM earnings per share at 3.18 and a MRQ book value per share value at 27.1 imply a Graham Number fair value = sqrt(22.5*3.18*27.1) = \$44.03. Based on the stock's price at \$33.15, this implies a potential upside of 32.83% from current levels.

3. Gannett Co., Inc. (NYSE:GCI): It operates as a media and marketing solutions company in the United States and internationally. It has a market cap of \$4.36 billion; its most recent closing price was \$18.16. Diluted TTM earnings per share at 1.84 and a MRQ book value per share value at 10.62 imply a Graham Number fair value = sqrt(22.5*1.84*10.62) = \$20.97. Based on the stock's price at \$17.6, this implies a potential upside of 19.14% from current levels.

EPS and BVPS 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.