4 Dividend Stocks Hitting New Lows, Undervalued by the Graham Number

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Includes: BK, JNS, MDP, TAP
by: Kapitall

Value investors search for stocks that appear underpriced relative to their intrinsic value, which is based off of company metrics such as earnings or book value. One 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 dividend stocks (paying dividend yields above 2% and sustainable payout ratios below 35%) that are trading just above their 52-week lows.

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.

click to enlarge

Do you think these stocks should be trading higher? Use this list as a starting-off point for your own analysis.

List sorted by dividend yield.

1. Meredith Corp. (NYSE:MDP): Publishing Industry. Market cap of \$1.34B. Dividend yield at 3.46%, payout ratio at 26.51%. The stock is currently trading at 6.49% above its 52-week low. TTM diluted EPS at \$2.85, MRQ book value per share at \$16.68, implies a Graham number of \$32.70 (vs. current price of \$29.83, a potential upside of 9.64%). The stock is a short squeeze candidate, with a short float at 30.39% (equivalent to 14.52 days of average volume). The stock has gained 0.96% over the last year.

2. Molson Coors Brewing Company (NYSE:TAP): Beverages Industry. Market cap of \$8.50B. Dividend yield at 2.82%, payout ratio at 26.26%. The stock is currently trading at 8.25% above its 52-week low. TTM diluted EPS at \$3.66, MRQ book value per share at \$42.85, implies a Graham number of \$59.40 (vs. current price of \$45.70, a potential upside of 29.98%). The stock has gained 3.82% over the last year.

3. Janus Capital Group, Inc. (NYSE:JNS):
Asset Management Industry. Market cap of \$1.69B. Dividend yield at 2.21%, payout ratio at 4.44%. The stock is currently trading at 2.32% above its 52-week low. TTM diluted EPS at \$0.92, MRQ book value per share at \$6.48, implies a Graham number of \$11.58 (vs. current price of \$8.66, a potential upside of 33.74%). This is a risky stock that is significantly more volatile than the overall market (beta = 2.68). The stock has lost 3.82% over the last year.

4. The Bank of New York Mellon Corporation (NYSE:BK): Asset Management Industry. Market cap of \$30.97B. Dividend yield at 2.09%, payout ratio at 16.99%. The stock is currently trading at 9.55% above its 52-week low. TTM diluted EPS at \$2.10, MRQ book value per share at \$26.78, implies a Graham number of \$35.57 (vs. current price of \$25.73, a potential upside of 38.25%). Might be undervalued at current levels, with a PEG ratio at 0.89, and P/FCF ratio at 12.43. The stock has gained 0.48% over the last year.

*BVPS and EPS 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.