Contrarian Ideas: 4 Undervalued Stocks Stuck in a Downtrend

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 |  Includes: ANW, FSYS, SKX, TLAB
by: Kapitall

The following is a list of stocks that are currently under their 20-day moving averages, as well as their 50-day and 200-day MA. These companies are also significantly undervalued when comparing current price to the fair value price, calculated by the Graham Number equation.

Benjamin Graham, the man who developed this equation, was a former mentor of Warren Buffett and is the so-called godfather of value investing.

The Graham Number, or the maximum price an investor should pay for a stock, is derived using only two data points: current earnings per share and current book value per share.

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. Therefore we only include companies that meet both of these criteria.

From these criteria, 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 could be undervalued? Or is this a list of falling knives? Use this article as a starting point for your own analysis.

Graham input data sourced from Yahoo Finance, all other data sourced from Finviz.



List sorted by implied potential upside.

1. Aegean Marine Petroleum Network Inc. (NYSE:ANW):
Basic Materials Wholesale Industry. Market cap of $372.46M. Current price 10.95% below the 20-day MA, 21.88% below the 50-day MA, and 48.78% below the 200-day MA.

BVPS at $10.32, diluted EPS at $0.96. Graham number = sqrt(22.5 x $10.32 x $0.96) = $14.93. Current price at $7.81 (implies a potential upside of 91.17%). It's been a rough couple of days for the stock, losing 9.61% over the last week.

2. Skechers USA Inc. (NYSE:SKX): Apparel Footwear & Accessories Industry. Market cap of $966.81M. Current price 6.33% below the 20-day MA, 4.82% below the 50-day MA, and 24.52% below the 200-day MA.

BVPS at $18.84, diluted EPS at $2.78. Graham number = sqrt(22.5 x $18.84 x $2.78) = $34.33. Current price at $20.05 (implies a potential upside of 71.21%). The stock has performed poorly over the last month, losing 12.1%.

3. Tellabs Inc. (NASDAQ:TLAB): Communication Equipment Industry. Market cap of $1.92B. Current price 3.07% below the 20-day MA, 12.38% below the 50-day MA, and 22.64% below the 200-day MA.

BVPS at $5.14, diluted EPS at $0.41. Graham number = sqrt(22.5 x $5.14 x $0.41) = $6.89. Current price at $5.30 (implies a potential upside of 29.92%).

TLAB has a relatively low correlation to the market (beta = 0.71), which may be appealing to risk-averse investors. The stock has lost 26.49% over the last year.

4. Fuel Systems Solutions, Inc. (NASDAQ:FSYS): Auto Parts Industry. Market cap of $423.06M. Current price 13.39% below the 20-day MA, 15.39% below the 50-day MA, and 24.52% below the 200-day MA.

BVPS at $16.81, diluted EPS at $2.23. Graham number = sqrt(22.5 x $16.81 x $2.23) = $29.04. Current price at $24.01 (implies a potential upside of 20.96%).

FSYS might be undervalued at current levels, with a PEG ratio at 0.71, and P/FCF ratio at 10.94. The stock is also a short squeeze candidate, with a short float at 21.26% (equivalent to 9.36 days of average volume).

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