6 High-Yield Large Caps Undervalued by the Graham Number

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 |  Includes: ED, ETR, PHG, SNY, VIP, XEL
by: Kapitall

One very helpful way to find undervalued opportunities is from the “godfather of value investing” himself, Benjamin Graham.

Graham created an equation to calculate the maximum fair value for a stock, referred to as the Graham Number. Any stock trading at a significant discount to this number would appear undervalued.

The Graham Number only requires two data points: current earnings per share and current book value per share. 
The Graham Number = Square Root of (22.5) x (TTM Earnings per Share) x (MRQ Book Value per Share). 

This equation assumes that a stock is overvalued if P/E is over 15 or P/BV is over 1.5.

We used the Graham Number to screen for potentially undervalued stocks among the universe of high-dividend-yield stocks with large market caps. The screen produced 6 stocks, listed below.

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.


Do you think these stocks are fairly priced? Use this list as a starting-off point for your own analysis.

List sorted by potential upside implied by the Graham Number.

1. VimpelCom Ltd. (NASDAQ:VIP): Market cap at $16.77B. Dividend yield at 4.66%. TTM diluted EPS at $1.48, MRQ Book Value Per Share at $8.72, implies a Graham number of $17.04 (vs. current price at $12.73, a potential upside of 33.86%).



2. Koninklijke Philips Electronics NV (NYSE:PHG): Market cap at $23.75B. Dividend yield at 4.73%. TTM diluted EPS at $2.08, MRQ Book Value Per Share at $21.31, implies a Graham number of $31.58 (vs. current price at $23.69, a potential upside of 33.31%).



3. Entergy Corporation (NYSE:ETR): Market cap at $12.14B. Dividend yield at 4.87%. TTM diluted EPS at $6.95, MRQ Book Value Per Share at $47.88, implies a Graham number of $86.53 (vs. current price at $68.09, a potential upside of 27.08%).

4. Sanofi-Aventis (NYSE:SNY): Market cap at $101.81B. Dividend yield at 4.84%. TTM diluted EPS at $2.73, MRQ Book Value Per Share at $29.17, implies a Graham number of $42.33 (vs. current price at $37.29, a potential upside of 13.51%).

5. Consolidated Edison Inc. (NYSE:ED): Market cap at $15.28B. Dividend yield at 4.59%. TTM diluted EPS at $3.73, MRQ Book Value Per Share at $38.43, implies a Graham number of $56.79 (vs. current price at $52.55, a potential upside of 8.07%).

6. Xcel Energy Inc. (NYSE:XEL): Market cap at $11.57B. Dividend yield at 4.35%. TTM diluted EPS at $1.68, MRQ Book Value Per Share at $16.90, implies a Graham number of $25.27 (vs. current price at $24.09, a potential upside of 4.92%).

*EPS and BVPS data sourced from Yahoo! Finance, all other 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.