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Benjamin Graham, the “godfather of value investing” and one-time mentor of Warren Buffett, developed an equation to calculate the fair value of a stock, known as the “Graham Number.” When stocks are trading at significant discounts to this number, they are considered undervalued relative to it.

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 ran a screen on stocks that are rallying above their 20-day, 50-day, and 200-day moving averages for those that are undervalued relative to 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.

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.)

Do you think the market is undervaluing these stocks? Use this list as a starting-off point for your own analysis.

List sorted by potential upside implied by Graham Number.

1. Comtech Telecommunications Corp. (NASDAQ:CMTL): Communication Equipment Industry. Market cap of $708.29M. The stock is currently trading at 6.16% above its 20-Day SMA, 2.10% above its 50-Day SMA, and 1.24% above its 200-Day SMA. TTM Diluted EPS at $2.22, MRQ Book Value Per Share at $25.83, Graham Number at $35.92 (vs. current price at $27.20, implies a potential upside of 32.06%). The stock has had a couple of great days, gaining 7.98% over the last week.

2. 1st Source Corporation (NASDAQ:SRCE): Regional Banks Industry. Market cap of $518.34M. The stock is currently trading at 3.01% above its 20-Day SMA, 3.56% above its 50-Day SMA, and 11.57% above its 200-Day SMA. TTM Diluted EPS at $1.68, MRQ Book Value Per Share at $20.88, Graham Number at $28.09 (vs. current price at $21.41, implies a potential upside of 31.22%). The stock has had a couple of great days, gaining 6.36% over the last week.

3. Duke Energy Corporation (NYSE:DUK): Electric Utilities Industry. Market cap of $24.71B. The stock is currently trading at 4.0% above its 20-Day SMA, 2.52% above its 50-Day SMA, and 6.10% above its 200-Day SMA. TTM Diluted EPS at $1.54, MRQ Book Value Per Share at $16.95, Graham Number at $24.23 (vs. current price at $18.56, implies a potential upside of 30.57%). The stock has gained 12.83% over the last year.

4. Sempra Energy (NYSE:SRE): Gas Utilities Industry. Market cap of $12.31B. The stock is currently trading at 6.14% above its 20-Day SMA, 2.04% above its 50-Day SMA, and 0.48% above its 200-Day SMA. TTM Diluted EPS at $4.85, MRQ Book Value Per Share at $40.01, Graham Number at $66.08 (vs. current price at $51.04, implies a potential upside of 29.46%). The stock has gained 1.51% over the last year.

5. Insight Enterprises Inc. (NASDAQ:NSIT): Application Software Industry. Market cap of $828.08M. The stock is currently trading at 14.54% above its 20-Day SMA, 10.13% above its 50-Day SMA, and 17.94% above its 200-Day SMA. TTM Diluted EPS at $1.87, MRQ Book Value Per Share at $12.90, Graham Number at $23.30 (vs. current price at $18.28, implies a potential upside of 27.45%). This is a risky stock that is significantly more volatile than the overall market (beta = 2.43). The stock has had a couple of great days, gaining 16.58% over the last week.

6. DTE Energy Co. (NYSE:DTE): Electric Utilities Industry. Market cap of $8.36B. The stock is currently trading at 5.05% above its 20-Day SMA, 1.99% above its 50-Day SMA, and 5.73% above its 200-Day SMA. TTM Diluted EPS at $4.09, MRQ Book Value Per Share at $40.07, Graham Number at $60.72 (vs. current price at $49.37, implies a potential upside of 23.0%). The stock has gained 9.88% over the last year.

7. Susser Holdings Corporation (NYSE:SUSS): Grocery Stores Industry. Market cap of $349.55M. The stock is currently trading at 15.14% above its 20-Day SMA, 20.98% above its 50-Day SMA, and 40.28% above its 200-Day SMA. TTM Diluted EPS at $1.81, MRQ Book Value Per Share at $13.97, Graham Number at $23.85 (vs. current price at $20.17, implies a potential upside of 18.26%). The stock has had a good month, gaining 23.67%.

8. Avista Corp. (NYSE:AVA): Diversified Utilities Industry. Market cap of $1.43B. The stock is currently trading at 7.57% above its 20-Day SMA, 2.76% above its 50-Day SMA, and 9.77% above its 200-Day SMA. TTM Diluted EPS at $1.80, MRQ Book Value Per Share at $20.15, Graham Number at $28.57 (vs. current price at $24.73, implies a potential upside of 15.52%). The stock has had a couple of great days, gaining 7.62% over the last week.

EPS and BVPS data sourced from Yahoo Finance; all other data sourced from Finviz.

Source: 8 Rallying Stocks With Graham Numbers That Point To 'Buy'