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If you are a follower of Graham’s value investment philosophy, you may find this article to be a great starting point to find potential value stocks.

To construct this list we looked for stocks with three characteristics:
- Market cap above $300M
- Oversold conditions as described by the RSI(14), i.e. RSI(14) < 30
- Significantly undervalued by the Graham number

The Graham Number is 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.



Considering these data points, which of these names would you rate as the best value stock in this list?

1. Astoria Financial Corporation (NYSE:AF):
Savings & Loans Industry. Market cap of $1.33B. RSI(14) at 29.02. BVPS at $13.62, diluted EPS at $0.93. Graham number = sqrt(22.5 x $13.62 x $0.93) = $16.88. Given the current price at $13.19, this implies an upside of 27.99%. The stock is a short squeeze candidate, with a short float at 9.6% (equivalent to 11.01 days of average volume). The stock has lost 4.65% over the last year.

2. CTS Corporation (NYSE:CTS): Diversified Electronics Industry. Market cap of $309.31M. RSI(14) at 26.71. BVPS at $8.2, diluted EPS at $0.65. Graham number = sqrt(22.5 x $8.2 x $0.65) = $10.95. Given the current price at $8.92, this implies an upside of 22.77%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.02). The stock has performed poorly over the last month, losing 17.03%.

3. DreamWorks Animation SKG Inc. (NASDAQ:DWA): Movie Production, Theaters Industry. Market cap of $1.79B. RSI(14) at 26.36. BVPS at $15.01, diluted EPS at $1.83. Graham number = sqrt(22.5 x $15.01 x $1.83) = $24.86. Given the current price at $21.37, this implies an upside of 16.33%. The stock is a short squeeze candidate, with a short float at 10.% (equivalent to 6.26 days of average volume). The stock has performed poorly over the last month, losing 16.26%.

4. First Citizens Bancshares Inc. (NASDAQ:FCNCA): Regional Banks Industry. Market cap of $1.87B. RSI(14) at 26.51. BVPS at $171.46, diluted EPS at $14.29. Graham number = sqrt(22.5 x $171.46 x $14.29) = $234.79. Given the current price at $179.41, this implies an upside of 30.87%. The stock is currently stuck in a downtrend, trading -5.12% below its SMA20, -8.42% below its SMA50, and -6.52% below its SMA200. The stock has lost 11.68% over the last year.

5. Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD): Heavy Construction Industry. Market cap of $323.46M. RSI(14) at 27.7. BVPS at $4.78, diluted EPS at $0.47. Graham number = sqrt(22.5 x $4.78 x $0.47) = $7.11. Given the current price at $5.38, this implies an upside of 32.15%. The stock is a short squeeze candidate, with a short float at 5.45% (equivalent to 6.72 days of average volume). The stock has performed poorly over the last month, losing 14.46%.

6. International Rectifier Corporation (NYSE:IRF): Semiconductor Industry. Market cap of $1.80B. RSI(14) at 26.6. BVPS at $18.87, diluted EPS at $2.18. Graham number = sqrt(22.5 x $18.87 x $2.18) = $30.42. Given the current price at $25.66, this implies an upside of 18.56%. The stock is currently stuck in a downtrend, trading -7.69% below its SMA20, -16.36% below its SMA50, and -9.76% below its SMA200. The stock has performed poorly over the last month, losing 17.4%.

7. Southside Bancshares Inc. (NASDAQ:SBSI): Regional Banks Industry. Market cap of $310.88M. RSI(14) at 26.58. BVPS at $13.54, diluted EPS at $2.14. Graham number = sqrt(22.5 x $13.54 x $2.14) = $25.53. Given the current price at $18.83, this implies an upside of 35.6%. The stock is a short squeeze candidate, with a short float at 7.38% (equivalent to 28.48 days of average volume). The stock has lost 1.61% over the last year.

8. Staples, Inc. (NASDAQ:SPLS):
Specialty Retail, Other Industry. Market cap of $10.88B. RSI(14) at 29.06. 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 $15.1, this implies an upside of 11.16%. Might be undervalued at current levels, with a PEG ratio at 0.84, and P/FCF ratio at 14.The stock has performed poorly over the last month, losing 24.69%.

9. TCF Financial Corporation (NYSE:TCB):
Money Center Banks Industry. Market cap of $2.19B. RSI(14) at 28.71. BVPS at $10.89, diluted EPS at $0.99. Graham number = sqrt(22.5 x $10.89 x $0.99) = $15.57. Given the current price at $13.69, this implies an upside of 13.77%. The stock is a short squeeze candidate, with a short float at 8.84% (equivalent to 7.56 days of average volume). It's been a rough couple of days for the stock, losing 5.37% over the last week.

10. Whirlpool Corp. (NYSE:WHR): Appliances Industry. Market cap of $5.67B. RSI(14) at 29.24. BVPS at $58.78, diluted EPS at $8.01. Graham number = sqrt(22.5 x $58.78 x $8.01) = $102.93. Given the current price at $73.9, this implies an upside of 39.28%. The stock is a short squeeze candidate, with a short float at 8.91% (equivalent to 5.15 days of average volume). The stock has performed poorly over the last month, losing 13.67%.

*Data sourced from Yahoo! Finance and Finviz.

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

Source: 10 Oversold Stocks Undervalued by Graham's Standards