20 Oversold Stocks That Are Undervalued Relative to the Graham Number

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Includes: AMGN, CEPH, CTL, CTRN, DOLNQ, ENIA, GD, HXM, IRS, MNI, NPO, RSH, SPOK, STX, TDS, TGI, TRK, TSRA, WDC, WPP
by: Kapitall

The following is a list of oversold stocks, as determined by the Relative Strength, or RSI(14), indicator. All of the stocks mentioned below have RSI(14) values below 31, which usually signals oversold conditions.

In addition, these stocks are also undervalued when comparing current price to the fair value price, calculated by the Graham Number equation.

The Graham Number is named after a formula developed by legendary value investor Benjamin Graham. It is the maximum price an investor should pay for a stock, and it is derived using only two data points: current earnings per share and current book value per share.

Here's the formula:

The Graham Number = Fair Value of a Stock = Square Root of (22.5) x (Earnings per Share) x (Book Value per Share).

The math of the Graham number is relatively straightforward. It is predicated on the belief that the price-to-earnings (P/EPS) ratio should be no more than 15, and the price-to-book value (P/BVPS) ratio should be no more than 1.5.

From that, the product of the two should not be more than 22.5. In other words, (P/EPS of 15) x (P/BVPS of 1.5) = 22.5, from which the equation was created.

Do you think these companies are certainly oversold and undervalued? If you are a value investor, this may be an interesting starting point.

Graham input data from Yahoo Finance, short float and performance data from Finviz.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.

List sorted by potential upside from current price, according to Graham fair value. (Note: Data sourced on Wednesday afternoon)

1. Western Digital Corp. (NYSE:WDC): Data Storage Devices Industry. Market cap of \$7.12B. RSI(14) at 28.83. BVPS at \$22.24, diluted EPS at \$4.63. Graham number = sqrt(22.5 x \$4.63 x \$22.24) = \$48.13. Price at time of writing \$30.75 (implies a potential upside of 36.12%). Short float at 2.93%, which implies a short ratio of 1.69 days. The stock has lost -21.13% over the last year.

2. Seagate Technology PLC (NASDAQ:STX): Data Storage Devices Industry. Market cap of \$5.76B. RSI(14) at 23.08. BVPS at \$6.13, diluted EPS at \$2.40. Graham number = sqrt(22.5 x \$2.40 x \$6.13) = \$18.19. Price at time of writing \$12.72 (implies a potential upside of 30.09%). Short float at 1.97%, which implies a short ratio of 0.88 days. The stock has lost -34.77% over the last year.

3. EnPro Industries, Inc. (NYSE:NPO): Industrial Equipment & Components Industry. Market cap of \$799.51M. RSI(14) at 28.48. BVPS at \$23.33, diluted EPS at \$5.37. Graham number = sqrt(22.5 x \$5.37 x \$23.33) = \$53.09. Price at time of writing \$38.83 (implies a potential upside of 26.86%). Short float at 7.2%, which implies a short ratio of 10.06 days. The stock has gained 39.38% over the last year.

4. The Dolan Company (NYSE:DM):
Periodicals Industry. Market cap of \$374.66M. RSI(14) at 25.11. BVPS at \$9.02, diluted EPS at \$1.14. Graham number = sqrt(22.5 x \$1.14 x \$9.02) = \$15.21. Price at time of writing \$12.28 (implies a potential upside of 19.27%). Short float at 3.2%, which implies a short ratio of 5.97 days. The stock has gained 15.74% over the last year.

5. Wausau Paper Corp. (NYSE:WPP): Paper & Paper Products Industry. Market cap of \$382.36M. RSI(14) at 29.52. BVPS at \$5.30, diluted EPS at \$0.75. Graham number = sqrt(22.5 x \$0.75 x \$5.30) = \$9.46. Price at time of writing \$7.80 (implies a potential upside of 17.52%). Short float at 3.39%, which implies a short ratio of 5.76 days. The stock has lost -12.36% over the last year.

: Electronics Stores Industry. Market cap of \$1.69B. RSI(14) at 30.26. BVPS at \$7.99, diluted EPS at \$1.78. Graham number = sqrt(22.5 x \$1.78 x \$7.99) = \$17.89. Price at time of writing \$14.88 (implies a potential upside of 16.82%). Short float at 10.18%, which implies a short ratio of 4.03 days. The stock has lost -21.97% over the last year.

Telecom Services Industry. Market cap of \$12.15B. RSI(14) at 26.06. BVPS at \$31.91, diluted EPS at \$3.13. Graham number = sqrt(22.5 x \$3.13 x \$31.91) = \$47.41. Price at time of writing \$40.05 (implies a potential upside of 15.52%). Short float at 9.16%, which implies a short ratio of 6.45 days. The stock has gained 24.92% over the last year.

8. IRSA Investments and Representations Inc. (NYSE:IRS): Real Estate Development Industry. Market cap of \$810.28M. RSI(14) at 28.67. BVPS at \$10.57, diluted EPS at \$1.11. Graham number = sqrt(22.5 x \$1.11 x \$10.57) = \$16.25. Price at time of writing \$14.00 (implies a potential upside of 13.83%). Short float at 0.03%, which implies a short ratio of 0.27 days. The stock has gained 49.11% over the last year.

9. The McClatchy Company (NYSE:MNI):
Newspapers Industry. Market cap of \$346.64M. RSI(14) at 25.88. BVPS at \$2.31, diluted EPS at \$0.43. Graham number = sqrt(22.5 x \$0.43 x \$2.31) = \$4.73. Price at time of writing \$4.08 (implies a potential upside of 13.70%). Short float at 32.01%, which implies a short ratio of 19.07 days. The stock has lost -20.93% over the last year.

10. Cephalon Inc. (NASDAQ:CEPH): Biotechnology Industry. Market cap of \$4.21B. RSI(14) at 26.2. BVPS at \$34.78, diluted EPS at \$5.27. Graham number = sqrt(22.5 x \$5.27 x \$34.78) = \$64.22. Price at time of writing \$55.62 (implies a potential upside of 13.39%). Short float at 17.92%, which implies a short ratio of 10.01 days. The stock has lost -18.29% over the last year.

11. Homex Development Corp. (NYSE:HXM): Property Management Industry. Market cap of \$1.57B. RSI(14) at 25.26. BVPS at \$16.54, diluted EPS at \$2.77. Graham number = sqrt(22.5 x \$2.77 x \$16.54) = \$32.11. Price at time of writing \$28.01 (implies a potential upside of 12.76%). Short float at 4.53%, which implies a short ratio of 10.39 days. The stock has gained 2.90% over the last year.

12. USA Mobility, Inc. (USMO): Wireless Communications Industry. Market cap of \$342.09M. RSI(14) at 27.27. BVPS at \$7.77, diluted EPS at \$1.80. Graham number = sqrt(22.5 x \$1.80 x \$7.77) = \$17.74. Price at time of writing \$15.50 (implies a potential upside of 12.62%). Short float at 4.87%, which implies a short ratio of 10.06 days. The stock has gained 52.56% over the last year.

13. Force Protection Inc. (NASDAQ:FRPT):
Aerospace/Defense Products & Services Industry. Market cap of \$356.92M. RSI(14) at 29.02. BVPS at \$4.52, diluted EPS at \$0.33. Graham number = sqrt(22.5 x \$0.33 x \$4.52) = \$5.79. Price at time of writing \$5.08 (implies a potential upside of 12.31%). Short float at 3%, which implies a short ratio of 5.43 days. The stock has lost -3.97% over the last year.

14. Speedway Motorsports Inc. (NYSE:TRK): Sporting Activities Industry. Market cap of \$596.58M. RSI(14) at 29.56. BVPS at \$20.77, diluted EPS at \$0.56. Graham number = sqrt(22.5 x \$0.56 x \$20.77) = \$16.18. Price at time of writing \$14.31 (implies a potential upside of 11.54%). Short float at 8.22%, which implies a short ratio of 21.3 days. The stock has lost -18.83% over the last year.

15. Enersis S.A. (ENI):
Foreign Utilities Industry. Market cap of \$12.51B. RSI(14) at 22.32. BVPS at \$12.15, diluted EPS at \$1.60. Graham number = sqrt(22.5 x \$1.60 x \$12.15) = \$20.91. Price at time of writing \$19.16 (implies a potential upside of 8.39%). Short float at 0.24%, which implies a short ratio of 0.97 days. The stock has lost -7.08% over the last year.

16. Tessera Technologies Inc. (NASDAQ:TSRA): Semiconductor Equipment & Materials Industry. Market cap of \$858.32M. RSI(14) at 26.93. BVPS at \$13.19, diluted EPS at \$1.14. Graham number = sqrt(22.5 x \$1.14 x \$13.19) = \$18.39. Price at time of writing \$17.01 (implies a potential upside of 7.52%). Short float at 2.39%, which implies a short ratio of 2.83 days. The stock has lost -6.59% over the last year.

17. Triumph Group, Inc. (NYSE:TGI)
: Aerospace/Defense Products & Services Industry. Market cap of \$2.02B. RSI(14) at 22.92. BVPS at \$59.63, diluted EPS at \$5.69. Graham number = sqrt(22.5 x \$5.69 x \$59.63) = \$87.37. Price at time of writing \$83.45 (implies a potential upside of 4.49%). Short float at 8.17%, which implies a short ratio of 10.66 days. The stock has gained 60.57% over the last year.

18. Citi Trends (NASDAQ:CTRN): Apparel Stores Industry. Market cap of \$307.13M. RSI(14) at 26.75. BVPS at \$13.21, diluted EPS at \$1.56. Graham number = sqrt(22.5 x \$1.56 x \$13.21) = \$21.53. Price at time of writing \$20.71 (implies a potential upside of 3.82%). Short float at 6.44%, which implies a short ratio of 5.81 days. The stock has lost -30.69% over the last year.

19. Amgen Inc. (NASDAQ:AMGN): Biotechnology Industry. Market cap of \$48.25B. RSI(14) at 17.77. BVPS at \$25.69, diluted EPS at \$4.79. Graham number = sqrt(22.5 x \$4.79 x \$25.69) = \$52.62. Price at time of writing \$51.07 (implies a potential upside of 2.94%). Short float at 1.46%, which implies a short ratio of 2.13 days. The stock has lost -9.99% over the last year.

20. Telephone & Data Systems Inc. (NYSE:TDS): Wireless Communications Industry. Market cap of \$3.41B. RSI(14) at 15.71. BVPS at \$36.63, diluted EPS at \$1.37. Graham number = sqrt(22.5 x \$1.37 x \$36.63) = \$33.60. Price at time of writing \$32.65 (implies a potential upside of 2.83%). Short float at 2.31%, which implies a short ratio of 9.74 days. The stock has gained 5.49% over the last year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.