Do you prefer searching for stocks that appear to be undervalued? We researched companies with this in mind.
We began by looking for large-cap stocks that appear undervalued relative to earnings growth, with PEG below 1. The PEG ratio is used to determine a stock's value while taking into account earnings growth. Similar to the PE ratio, a lower PEG means that the stock appears undervalued. We found around 60 stocks that met the criteria.
Finally, 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.
We also looked at the 13F's for the 3 companies to find the top 2 institutional holders of these stocks.
A Closer Look
We took a closer look at AFLAC, Inc. (NYSE:AFL). The company's stock trades around $50.20 versus its 52-week range of $50.13-$50.39. The stock trades with a P/E multiple of 8 times versus Unum Group (NYSE:UNM), which trades with a multiple of 7 times, and Amerisafe Inc. (NASDAQ:AMSF), which trades with a multiple of 21 times.
AFLAC stocks yields 2.79%, and Unum Group's stock yields 2.19%. More importantly, AFLAC has increased its dividend every year for the last 30 years.
Approximately 90% of the company's products are sold to small businesses, a group that is expected to see growth going forward. We would still encourage investors to track the impact of the Affordable Care Act on the company's financials.
Overall, AFLAC is a company with strong fundamentals, which has returned cash to shareholders in the form of dividends. Additionally, the stock looks undervalued by earnings growth and the Graham Number.
Is it time for you to invest in this name?
For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.
Do you think these stocks are being undervalued? Use this list as a starting point for your own analysis.
1. AFLAC Inc. : Provides supplemental health and life insurance.
- Market cap at $23.53B, most recent closing price at $50.18.
- Diluted TTM earnings per share at 6.07, and a MRQ book value per share value at 34.1, implies a Graham Number fair value of $68.24. Based on the stock's price at $53.06, this implies a potential upside of 28.62% from current levels.
- PEG at 0.96.
- The top 2 holders of the stock are The Vanguard Group, and State Street Corp.
2. CME Group Inc. (NASDAQ:CME): Operates the CME, CBOT, NYMEX, and COMEX regulatory exchanges worldwide.
- Market cap at $18.97B, most recent closing price at $56.90.
- Diluted TTM earnings per share at 4.45, and a MRQ book value per share value at 65.45, implies a Graham Number fair value of $80.95. Based on the stock's price at $59.04, this implies a potential upside of 37.11% from current levels.
- PEG at 0.88.
- The top 2 holders of the stock are Capital World Investors, and JP Morgan Chase.
3. General Motors Company (NYSE:GM): Operates as a global automaker.
- Market cap at $44.58B, most recent closing price at $28.47.
- Diluted TTM earnings per share at 2.66, and a MRQ book value per share value at 19.97, implies a Graham Number fair value of $34.57. Based on the stock's price at $28.17, this implies a potential upside of 22.73% from current levels.
- PEG at 0.91.
- The top 2 holders of the stock are Capital Research Global Investors, and JP Morgan Chase.
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.
Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.