Do you consider yourself a value investor? If so, we ran a screen looking for potentially undervalued dividend stocks you may be interested in.
To create the list below we began by screening the financials sector for stocks that have outperformed the market over the last quarter, with quarterly performance above 10%. The financial industry as a whole has a positive 7.9% 3-month performance and 13.37% 6-month performance.
Then we screened 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.
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.
Finally, to see if they might have more upside we reviewed the 13F's of those companies in search of bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to outperform into the future.
Our final list consisted of 3 stocks.
For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.
Do you think these stocks should be trading higher? Use the list below as a starting point for your analysis:
1. Colony Financial, Inc. (NYSE:CLNY): Focuses on acquiring, originating, and managing commercial mortgage loans and other commercial real estate-related debt investments.
- Market cap at $1.45B, most recent closing price at $22.44.
- Net institutional purchases in the current quarter at 14.7M shares, which represents about 24.61% of the company's float of 59.74M shares. The 2 top holders of the stock are SAB Capital Management, and The Vanguard Group.
- Diluted TTM earnings per share at 1.32, and a MRQ book value per share value at 23.04, implies a Graham Number fair value = sqrt(22.5*1.32*23.04) = $26.16. Based on the stock's price at $22.44, this implies a potential upside of 16.57% from current levels.
- Performance over the last quarter at 15%.
2. First Citizens Bancshares Inc. (NASDAQ:FCNCA): Operates as the holding company for First-Citizens Bank & Trust Company that provides various banking products and services to retail and commercial customers in the United States.
- Market cap at $1.75B, most recent closing price at $181.60.
- Net institutional purchases in the current quarter at 990.8K shares, which represents about 17.05% of the company's float of 5.81M shares. The 2 top holders of the stock are Wellington Management, and Axa.
- Diluted TTM earnings per share at 13.11, and a MRQ book value per share value at 193.74, implies a Graham Number fair value = sqrt(22.5*13.11*193.74) = $239.06. Based on the stock's price at $181.6, this implies a potential upside of 31.64% from current levels.
- Performance over the last quarter at 11%.
- Of interest: First Citizens Bancshares Inc. has a low short float compared to industry averages, suggesting perhaps that short sellers see limited downside in the stock. The company's short float stands at 0.45%, much lower than United Bankshares Inc. (short float at 12.10%, representing 21.94 days of trading volume) and Synovus Financial Corp. (short float at 5.12%, representing 4.04 days of trading volume).
3. FirstMerit Corporation (NASDAQ:FMER): Provide securities brokerage, trust, equipment lease financing, insurance, and other services.
- Market cap at $1.8B, most recent closing price at $16.38.
- Net institutional purchases in the current quarter at 6.7M shares, which represents about 6.21% of the company's float of 107.89M shares. The 2 top holders of the stock are BlackRock Fund Advisors, and FMR, LLC.
- Diluted TTM earnings per share at 1.22, and a MRQ book value per share value at 15, implies a Graham Number fair value = sqrt(22.5*1.22*15) = $20.29. Based on the stock's price at $16.38, this implies a potential upside of 23.88% from current levels.
- Performance over the last quarter at 17%.
- Unlike First Citizens, short sellers think there's more downside to this stock, especially when comparing short float to industry averages. FMER short float stands at 15.73%, which is equivalent to 14.82 days of average trading volume. As an example, this is much higher than U.S. Bancorp (short float at 0.95%, representing 1.79 days of trading volume) and Huntington Bancshares Incorporated (short float at 1.36%, representing 1.05 days of trading volume).
*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.
Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Rebecca Lipman, 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.