Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message|
( followers)

The following list of stocks might appeal to value and income investors. To compile this list we started with a universe of over 100 stocks with market caps above $300M and dividend yields that were greater than 2%. We then looked at the components of the Graham number equation and identified the most undervalued companies.

The Graham number is an estimate of the fair value of a stock, and it is derived using 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 logic behind the math is predicated on Graham’s 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. As a result, 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.

For our article we used the trailing twelve month diluted EPS and the most recent quarter's BVPS values.

With all this in mind, do you think these stocks are undervalued? Use this list as a starting point for your own analysis.

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.

The list has been sorted by the implied upside to fair value, as calculated by the Graham equation.

1. China Petroleum & Chemical Corp. (NYSE:SNP): Independent Oil & Gas Industry. Market cap of $87.76B. Dividend yield 2.76%. BVPS at $70.8, diluted EPS at $11.7. Graham number = sqrt(22.5 x $70.8 x $11.7) = $136.52. This implies an upside of around 38.81%, given the current price of $98.35. The stock has gained 27.47% over the last year.

2. Delhaize Group (NYSE:DEG): Grocery Stores Industry. Market cap of $8.27B. Dividend yield 2.39%. BVPS at $70.51, diluted EPS at $7.95. Graham number = sqrt(22.5 x $70.51 x $7.95) = $112.31. This implies an upside of around 38.34%, given the current price of $81.18. Relatively low correlation to the market (beta = 0.7), which may be appealing to risk averse investors. The stock has gained 4.29% over the last year.

3. EarthLink Inc. (NASDAQ:ELNK): Internet Service Providers Industry. Market cap of $847.38M. Dividend yield 2.56%. BVPS at $6.99, diluted EPS at $0.74. Graham number = sqrt(22.5 x $6.99 x $0.74) = $10.79. This implies an upside of around 37.43%, given the current price of $7.85. The stock is a short squeeze candidate, with a short float at 8.81% (equivalent to 5.05 days of average volume). The stock has lost 0.51% over the last year.

4. The McClatchy Company (NYSE:MNI): Newspapers Industry. Market cap of $308.62M. Dividend yield 9.92%. BVPS at $2.58, diluted EPS at $0.43. Graham number = sqrt(22.5 x $2.58 x $0.43) = $5.0. This implies an upside of around 36.51%, given the current price of $3.66. This is a risky stock that is significantly more volatile than the overall market (beta = 3.2). The stock is a short squeeze candidate, with a short float at 35.87% (equivalent to 22.95 days of average volume). The stock has had a couple of great days, gaining 10.% over the last week.

5. L-3 Communications Holdings Inc. (NYSE:LLL): Aerospace/Defense Products & Services Industry. Market cap of $9.21B. Dividend yield 2.26%. BVPS at $62.27, diluted EPS at $8.25. Graham number = sqrt(22.5 x $62.27 x $8.25) = $107.51. This implies an upside of around 36.13%, given the current price of $78.98. The stock has lost 12.77% over the last year.

6. Star Gas Partners LP (NYSE:SGU): Specialty Retail Industry. Market cap of $361.0M. Dividend yield 5.82%. BVPS at $4.41, diluted EPS at $0.52. Graham number = sqrt(22.5 x $4.41 x $0.52) = $7.18. This implies an upside of around 34.52%, given the current price of $5.34. The stock has gained 29.06% over the last year.

7. Huaneng Power International Inc. (NYSE:HNP): Electric Utilities Industry. Market cap of $6.98B. Dividend yield 5.31%. BVPS at $20.2, diluted EPS at $2.08. Graham number = sqrt(22.5 x $20.2 x $2.08) = $30.75. This implies an upside of around 32.02%, given the current price of $23.29. The stock has gained 4.89% over the last year.

8. Molson Coors Brewing Company (NYSE:TAP): Brewers Industry. Market cap of $8.43B. Dividend yield 2.48%. BVPS at $41.75, diluted EPS at $3.78. Graham number = sqrt(22.5 x $41.75 x $3.78) = $59.59. This implies an upside of around 31.6%, given the current price of $45.28. Relatively low correlation to the market (beta = 0.75), which may be appealing to risk averse investors. The stock has gained 8.59% over the last year.

9. Safety Insurance Group Inc. (NASDAQ:SAFT): Property & Casualty Insurance Industry. Market cap of $679.17M. Dividend yield 4.46%. BVPS at $43.88, diluted EPS at $3.55. Graham number = sqrt(22.5 x $43.88 x $3.55) = $59.2. This implies an upside of around 31.56%, given the current price of $45.0. The stock has gained 23.38% over the last year.

10. SK Telecom Co. Ltd. (NYSE:SKM): Wireless Communications Industry. Market cap of $12.07B. Dividend yield 4.22%. BVPS at $15.2, diluted EPS at $1.68. Graham number = sqrt(22.5 x $15.2 x $1.68) = $23.97. This implies an upside of around 30.77%, given the current price of $18.33. The stock has gained 6.49% over the last year.

11. Cninsure Inc. (NASDAQ:CISG): Insurance Brokers Industry. Market cap of $683.09M. Dividend yield 7.68%. BVPS at $9.26, diluted EPS at $1.3. Graham number = sqrt(22.5 x $9.26 x $1.3) = $16.46. This implies an upside of around 28.88%, given the current price of $12.77. The stock is a short squeeze candidate, with a short float at 16.01% (equivalent to 11.67 days of average volume). The stock is currently stuck in a downtrend, trading -15.72% below its SMA20, -25.41% below its SMA50, and -41.13% below its SMA200. The stock has performed poorly over the last month, losing 20.91%.

12. American Greetings Corp. (NYSE:AM-OLD): Business Services Industry. Market cap of $923.62M. Dividend yield 2.61%. BVPS at $17.68, diluted EPS at $2.19. Graham number = sqrt(22.5 x $17.68 x $2.19) = $29.52. This implies an upside of around 27.66%, given the current price of $23.12. The stock is a short squeeze candidate, with a short float at 19.63% (equivalent to 27.14 days of average volume). The stock has had a couple of great days, gaining 6.13% over the last week.

13. Northrop Grumman Corporation (NYSE:NOC): Conglomerates Industry. Market cap of $19.93B. Dividend yield 2.75%. BVPS at $46.6, diluted EPS at $6.82. Graham number = sqrt(22.5 x $46.6 x $6.82) = $84.56. This implies an upside of around 23.76%, given the current price of $68.33. The stock has gained 7.71% over the last year.

14. Sanofi-Aventis (NYSE:SNY): Drug Manufacturer. Market cap of $3.0B. Dividend yield 4.23%. BVPS at $28.08, diluted EPS at $2.88. Graham number = sqrt(22.5 x $28.08 x $2.88) = $42.66. This implies an upside of around 23.25%, given the current price of $34.61. The stock has lost 2.26% over the last year.

15. IdaCorp, Inc. (NYSE:IDA): Electric Utilities Industry. Market cap of $1.84B. Dividend yield 3.23%. BVPS at $31.01, diluted EPS at $2.95. Graham number = sqrt(22.5 x $31.01 x $2.95) = $45.37. This implies an upside of around 20.5%, given the current price of $37.65. The stock has gained 11.88% over the last year.

EPS and BVPS sourced from Yahoo! Finance. Short float and performance 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.