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Are you looking for value ideas? If so, this list may be a helpful starting place for that search.

Below we present nine utilities stocks with dividends between 4%-7%. These stocks are also undervalued by the Graham Number.
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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 (TTM Earnings per Share) x (MRQ 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.

How do you define value? Use this list as a starting point for your own analysis into value investments.

List sorted by potential upside implied by the Graham Number.

1. Great Plains Energy Incorporated (NYSE:GXP): Electric Utilities Industry. Market cap of $2.79B. Dividend yield at 4.0%. BVPS at $21.33, diluted EPS at $1.53. Graham number = sqrt(22.5 x $21.33 x $1.53) = $27.10. Current price at $20.55 (implies a potential upside of 31.86%). GXP has a relatively low correlation to the market (beta = 0.76), which may be appealing to risk-averse investors. The stock has gained 12.97% over the last year.



2. Entergy Corporation (NYSE:ETR): Electric Utilities Industry. Market cap of $11.92B. Dividend yield at 5.0%. BVPS at $47.53, diluted EPS at $6.66. Graham number = sqrt(22.5 x $47.53 x $6.66) = $84.39. Current price at $66.50 (implies a potential upside of 26.91%). The stock has performed poorly over the last month, losing 10.15%.



3. DTE Energy Co. (NYSE:DTE): Electric Utilities Industry. Market cap of $8.38B. Dividend yield at 4.5%. BVPS at $39.67, diluted EPS at $3.74. Graham number = sqrt(22.5 x $39.67 x $3.74) = $57.78. Current price at $49.23 (implies a potential upside of 17.36%). The stock has gained 12.47% over the last year.



4. Portland General Electric Company (NYSE:POR): Electric Utilities Industry. Market cap of $1.82B. Dividend yield at 4.3%. BVPS at $21.14, diluted EPS at $1.66. Graham number = sqrt(22.5 x $21.14 x $1.66) = $28.10. Current price at $24.08 (implies a potential upside of 16.69%). The stock has gained 29.34% over the last year.

5. Pinnacle West Capital Corporation (NYSE:PNW): Electric Utilities Industry. Market cap of $4.67B. Dividend yield at 4.9%. BVPS at $33.86, diluted EPS at $3.26. Graham number = sqrt(22.5 x $33.86 x $3.26) = $49.84. Current price at $43.05 (implies a potential upside of 15.76%). The stock has gained 19.36% over the last year.



6. Avista Corp. (NYSE:AVA): Diversified Utilities Industry. Market cap of $1.35B. Dividend yield at 4.7%. BVPS at $19.71, diluted EPS at $1.65. Graham number = sqrt(22.5 x $19.71 x $1.65) = $27.05. Current price at $23.53 (implies a potential upside of 14.96%). The stock has gained 20% over the last year.

7. American Electric Power Co., Inc. (NYSE:AEP):
Electric Utilities Industry. Market cap of $17.06B. Dividend yield at 5.2%. BVPS at $28.33, diluted EPS at $2.53. Graham number = sqrt(22.5 x $28.33 x $2.53) = $40.16. Current price at $35.36 (implies a potential upside of 13.57%). Relatively low correlation to the market (beta = 0.59). The stock has gained 8.74% over the last year.

8. SCANA Corp. (NYSE:SCG): Diversified Utilities Industry. Market cap of $5.05B. Dividend yield at 4.9%. BVPS at $29.15, diluted EPS at $2.98. Graham number = sqrt(22.5 x $29.15 x $2.98) = $44.21. Current price at $39.43 (implies a potential upside of 12.12%).

9. Westar Energy, Inc. (NYSE:WR): Diversified Utilities Industry. Market cap of $2.99B. Dividend yield at 4.9%. BVPS at $21.25, diluted EPS at $1.80. Graham number = sqrt(22.5 x $21.25 x $1.80) = $29.34. Current price at $26.39 (implies a potential upside of 11.16%). The stock is a short squeeze candidate, with a short float at 15.77% (equivalent to 18.56 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.

Source: Value Ideas: 9 Deeply Undervalued, High-Yield Utilities for a Watchlist