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“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”

This is probably one of Warren Buffett’s most renowned quotes. And if you agree with him, then you may find this list to be particularly interesting.

To construct this list we looked for companies with market cap above $10B and with RSI(14) indicator below 40, which is generally considered to be an oversold condition. This gave us a universe of over 100 stocks.

We then went trough each of these companies book value per share and diluted earnings per share ratios, and focused on those that were significantly undervalued by the Graham Number.

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.


The Graham Number was considered to be the maximum price an investor should pay for a stock, according to the formula developed by Benjamin Graham. 


It is calculated as follows:

Graham Number = Square Root of (22.5) x (Earnings per Share) x (Book Value per Share)

This equation 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.

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

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.




So…which of these stocks do you think is most likely to rebound?

1. Wells Fargo & Company (NYSE:WFC): Money Center Banks Industry. Market cap of $134.13B. RSI(14) at 35.11. BVPS at $23.18, diluted EPS at $2.43. Graham number = sqrt(22.5 x $23.18 x $2.43) = $35.6. Given the current price at $26.17, this implies an upside of 36.03%. On a net basis, institutional investors bought 249.5M shares during the current quarter - which is equivalent to 5.05% of the floating shares.

2. The Bank of New York Mellon Corporation (NYSE:BK): Asset Management Industry. Market cap of $32.56B. RSI(14) at 35.44. BVPS at $26.78, diluted EPS at $2.1. Graham number = sqrt(22.5 x $26.78 x $2.1) = $35.57. Given the current price at $26.68, this implies an upside of 33.33%. On a net basis, institutional investors bought 14.0M shares during the current quarter - which is equivalent to 1.13% of the floating shares.

3. MetLife, Inc. (NYSE:MET):
Life Insurance Industry. Market cap of $43.59B. RSI(14) at 33.67. BVPS at $47.17, diluted EPS at $2.85. Graham number = sqrt(22.5 x $47.17 x $2.85) = $55.0. Given the current price at $41.8, this implies an upside of 31.57%. On a net basis, institutional investors bought 168.0M shares during the current quarter - which is equivalent to 20.05% of the floating shares. The stock has gained 7.96% over the last year.

4. Xerox Corp. (NYSE:XRX): Business Equipment Industry. Market cap of $13.26B. RSI(14) at 34.68. BVPS at $8.93, diluted EPS at $0.64. Graham number = sqrt(22.5 x $8.93 x $0.64) = $11.34. Given the current price at $9.56, this implies an upside of 18.62%. On a net basis, institutional investors bought 24.4M shares during the current quarter - which is equivalent to 1.81% of the floating shares. It's been a rough couple of days for the stock, losing 5.4% over the last week.

5. State Street Corp. (NYSE:STT): Regional Banks Industry. Market cap of $21.25B. RSI(14) at 37.43. BVPS at $37.09, diluted EPS at $3.03. Graham number = sqrt(22.5 x $37.09 x $3.03) = $50.29. Given the current price at $42.95, this implies an upside of 17.08%. On a net basis, institutional investors bought 5.1M shares during the current quarter - which is equivalent to 1.02% of the floating shares. The stock has gained 16.05% over the last year.

6. Brookfield Asset Management Inc. (NYSE:BAM):
Asset Management Industry. Market cap of $18.27B. RSI(14) at 38.75. BVPS at $23.66, diluted EPS at $2.46. Graham number = sqrt(22.5 x $23.66 x $2.46) = $36.19. Given the current price at $31.78, this implies an upside of 13.87%. On a net basis, institutional investors bought 25.8M shares during the current quarter - which is equivalent to 4.59% of the floating shares. The stock has gained 38.77% over the last year.

7. Staples, Inc. (NASDAQ:SPLS): Specialty Retail Industry. Market cap of $10.68B. RSI(14) at 23.63. BVPS at $10.18, diluted EPS at $1.23. Graham number = sqrt(22.5 x $10.18 x $1.23) = $16.78. Given the current price at $15.2, this implies an upside of 10.43%. On a net basis, institutional investors bought 20.0M shares during the current quarter - which is equivalent to 2.82% of the floating shares.

*Data sourced from Yahoo! Finance, Fidelity and Finviz.

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

Source: Hedge Funds Love These 7 Undervalued, Oversold, Large Cap Stocks