6 Big Banking Stocks Trading 25% Below Their Graham Number

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 |  Includes: COF, GS, JPM, PNC, RF, TRV
by: Kapitall

Summary

Big banking stocks have rallied since Goldman Sachs reported earnings.

Banking stocks have underperformed so far this year.

Undervalued banking stocks may be ready for a bounce.

Big banking stocks have seen positive returns for the last month with JP Morgan (JPM), MasterCard (MA), and Bank of New York (BNY) all gaining north of 2%.

Many are attributing the renewed enthusiasm for big banking stocks to the surprising earnings from Goldman Sachs (GS), where net income handily beat all estimates earlier this week.

When firms contended with shutting down their trading desks and increasingly large fines from the Justice Department, investors were skeptical about the sector. Goldman Sachs was the worst performer on the Dow so far this year.

With that in mind, we decided to screen for undervalued big banking stocks, in case investors are still overly bearish on the sector. To do that we decided to screen all US financial institutions with a market cap of $10 billion or more.

We then screened that list of 70 firms for stocks trading below their Graham number. Named for pioneer value investor Benjamin Graham, who wrote the book on security analysis, the Graham number is a "fair value" of the stock based on earnings and book value.

A number of stocks in the sector appear to still be undervalued by this metric, so we set the screen very high, only including stocks trading at least 25% below their Graham number. This indicates that there is still a large incongruity between the company's size and earnings, and the price people are willing to pay for shares.

Click here for the full, interactive chart.

1. JPMorgan Chase & Co.: Provides various financial services worldwide. Market cap at $212.02B, most recent closing price at $56.02.

Diluted TTM earnings per share at 4.04, and a MRQ book value per share value at 54.06, implies a Graham Number fair value = sqrt(22.5*4.04*54.06) = $70.10.

Based on the stock's price at $55.8, this implies a potential upside of 25.63% from current levels.

2. The Goldman Sachs Group, Inc.: Provides investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Market cap at $73.64B, most recent closing price at $164.67.

Diluted TTM earnings per share at 15.18, and a MRQ book value per share value at 154.69, implies a Graham Number fair value = sqrt(22.5*15.18*154.69) = $229.86.

Based on the stock's price at $164.8, this implies a potential upside of 39.48% from current levels.

Click here for the full, interactive chart.

3. PNC Financial Services Group Inc. (NYSE:PNC): Operates as a diversified financial services company. Market cap at $47.14B, most recent closing price at $88.26.

Diluted TTM earnings per share at 7.48, and a MRQ book value per share value at 73.74, implies a Graham Number fair value = sqrt(22.5*7.48*73.74) = $111.40.

Based on the stock's price at $87.33, this implies a potential upside of 27.56% from current levels.

4. Capital One Financial Corp. (NYSE:COF): Operates as the bank holding company for the Capital One Bank (USA), National Association and Capital One, National Association, which provide various financial products and services in the United States, Canada, and the United Kingdom. Market cap at $48.24B, most recent closing price at $84.39.

Diluted TTM earnings per share at 7.15, and a MRQ book value per share value at 74.96, implies a Graham Number fair value = sqrt(22.5*7.15*74.96) = $109.81.

Based on the stock's price at $83.96, this implies a potential upside of 30.79% from current levels.

Click here for the full, interactive chart.

5. Regions Financial Corp. (NYSE:RF): Operates as the holding company for the Regions Bank that provides a range of commercial, retail, and mortgage banking services in the United States. Market cap at $14.66B, most recent closing price at $10.63.

Diluted TTM earnings per share at 0.76, and a MRQ book value per share value at 11.39, implies a Graham Number fair value = sqrt(22.5*0.76*11.39) = $13.96.

Based on the stock's price at $10.61, this implies a potential upside of 31.54% from current levels.

6. The Travelers Companies, Inc. (NYSE:TRV): Provides various commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals primarily in the United States. Market cap at $32.91B, most recent closing price at $94.70.

Diluted TTM earnings per share at 10.35, and a MRQ book value per share value at 73.06, implies a Graham Number fair value = sqrt(22.5*10.35*73.06) = $130.44.

Based on the stock's price at $94.68, this implies a potential upside of 37.77% from current levels.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Kapitall is a team of analysts. This article was written by James Dennin, 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.