Top 5 Rallying Stocks Undervalued by Graham's Standards

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Includes: AET, ESL, GXP, LLL, SEB
by: Kapitall

If you believe that the trend is your friend and you also follow the value investing philosophy, then this article may provide with a group companies you will want to keep an eye on.

To construct this list we looked for companies with the following criteria:
- Market cap between $2B to $10B
- Trading above the 20, 50 and 200-day moving averages
- And significantly undervalued to the Graham Number

The Graham Number is calculated as follows:

G. 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.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.



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.



Given this information, which of these names would you be most likely to put your money to work with?

1. Seaboard Corp. (NYSEMKT:SEB): Meat Products Industry. Market cap of $2.86B. This stock is 2.07% above from its 20-day MA, 1.13% above from its 50-day MA, and 13.12% above from its 200-day MA. BVPS at $1556.01, diluted EPS at $276.94. Graham number = sqrt(22.5 x $1556.01 x $276.94) = $3113.8. Given the current price at $2342.5, this implies an upside of 32.93%. The stock has gained 46.09% over the last year.

2. L-3 Communications Holdings Inc. (NYSE:LLL): Aerospace/Defense Products & Services Industry. Market cap of $8.69B. This stock is 1.23% above from its 20-day MA, 1.81% above from its 50-day MA, and 9.02% above from its 200-day MA. BVPS at $63.67, diluted EPS at $8.24. Graham number = sqrt(22.5 x $63.67 x $8.24) = $108.65. Given the current price at $82.01, this implies an upside of 32.48%. The stock has gained 2.59% over the last year.

3. Coventry Health Care Inc. (CVH): Health Care Plans Industry. Market cap of $5.07B. This stock is 0.72% above from its 20-day MA, 3.35% above from its 50-day MA, and 21.39% above from its 200-day MA. BVPS at $28.81, diluted EPS at $3.05. Graham number = sqrt(22.5 x $28.81 x $3.05) = $44.46. Given the current price at $34.58, this implies an upside of 28.58%. The stock has gained 67.8% over the last year.

4. Great Plains Energy Incorporated (NYSE:GXP):
Electric Utilities Industry. Market cap of $2.83B. This stock is 0.9% above from its 20-day MA, 1.98% above from its 50-day MA, and 8.11% above from its 200-day MA. BVPS at $21.14, diluted EPS at $1.39. Graham number = sqrt(22.5 x $21.14 x $1.39) = $25.71. Given the current price at $20.82, this implies an upside of 23.5%. The stock has gained 21.87% over the last year.

5. Esterline Technologies Corp. (NYSE:ESL): Aerospace/Defense Products & Services Industry. Market cap of $2.25B. This stock is 0.42% above from its 20-day MA, 2.83% above from its 50-day MA, and 11.15% above from its 200-day MA. BVPS at $51.86, diluted EPS at $5.68. Graham number = sqrt(22.5 x $51.86 x $5.68) = $81.41. Given the current price at $73.85, this implies an upside of 10.24%. The stock has gained 41.44% over the last year.

*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.