What are we looking at today?
Looking at a fund's 13F filing may lead to the discovery of great opportunities in investing. As most retail investors have a 9-5 for their normal income, researching stocks can take up free time we can spend with friends or family. We are going to look at three undervalued stocks owned by Berkshire Hathaway (BRK.A) (BRK.B) that can lead to great returns for the long-term investor. We are going to look at Wells Fargo (WFC), National Oilwell Varco (NOV) and General Motors (GM). All three stocks have great value and growth potential.
First, we are going to look at the Graham Number for each stock. At a quick glance calculating the Graham Number is an effective way to decide if you would like to research the candidate more or simply move to the next one on your list. The Graham Number is calculated as:
Square root of (22.5 x Earnings per Share x Book Value per Share)
Second we are going to look at the estimated growth over the next five years. This is commonly known as the Price Earnings Growth ratio or PEG. This is calculated by:
(Stock Price / Earnings per Share / 5 year growth rate)
Wells Fargo Inc.
- Current Price - $35.15
- EPS - $3.36
- Book Value - $27.66
- Graham Number - $45.73
- 5-year growth - 10.10%
- PEG - 1.04
- "Fair Market Growth Price" - $33.79
National Oilwell Varco
- Current Price - $68.96
- EPS - $5.91
- Book Value - $47.71
- Graham Number - $79.65
- 5-year growth - 16.70%
- PEG - .70
- "Fair Market Growth Price" - $98.51
- Current Price - $28.67
- EPS - $2.66
- Book Value - $19.97
- Graham Number - $34.57
- 5-year growth - 11.80%
- PEG - .91
- "Fair Market Growth Price" - $31.51
Currently WFC is substantially less than its Graham Number. However it is not lower than its fair market price based on growth. Two things that are not counted in these numbers that Wells Fargo has going for it: First, a very good share buyback program. One that I suspect will continue for some time. Second, at these prices WFC has a $1.00 (2.90%) dividend, it was recently increased, and something I also suspect will continue to increase on an annual basis. These are both things to consider if looking at WFC.
NOV is considerably lower than its Graham Number as well as its growth price. NOV is currently rebounding from a price dip and now is a great time to buy for the long term.
GM is in between the other two. Currently lower than both numbers, however not nearly as undervalued as NOV. However it is still a great stock to keep an eye on especially as earnings will be released on February 14.
Disclosure: I am long NOV.