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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 stocks that are technically oversold (with RSI(14) under 40).

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.

click on image to enlarge

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

List sorted by potential upside implied by Graham number:

  1. STEC, Inc. (STEC): Designs, manufactures, and markets enterprise-class flash solid-state drives (SSDs) for use in high-performance storage and server systems. Market cap of $490.30 million. RSI(14) at 39.33. TTM Diluted EPS at $1.05, MRQ Book Value Per Share at $6.90, Graham number at $12.77 (vs. current price at $9.49, implies a potential upside of 34.54%). The stock is a short squeeze candidate, with a short float at 26.25% (equivalent to 5.22 days of average volume). The stock has had a couple of great days, gaining 8.32% over the last week.
  2. AMERCO (UHAL): AMERCO, through its subsidiary, U-Haul International, Inc., a do-it-yourself moving and storage operator, supplies products and services used to move and store household and commercial goods in the United States and Canada. Market cap of $1.44 billion. RSI(14) at 39.39. TTM Diluted EPS at $9.10, MRQ Book Value Per Share at $46.91, Graham number at $98.00 (vs. current price at $73.31, implies a potential upside of 33.68%). The stock has performed poorly over the last month, losing 16.78%.
  3. Apollo Global Management, LLC (APO): The company is a publicly owned investment manager. Market cap of $1.58 billion. RSI(14) at 36.35. TTM Diluted EPS at $1.89, MRQ Book Value Per Share at $6.56, Graham number at $16.70 (vs. current price at $12.97, implies a potential upside of 28.78%). Might be undervalued at current levels, with a PEG ratio at 0.69, and P/FCF ratio at 2.89. The stock is a short squeeze candidate, with a short float at 5.96% (equivalent to 6.63 days of average volume). The stock has performed poorly over the last month, losing 21.58%.
  4. Novellus Systems, Inc. (NVLS): Develops, manufactures, sells, and supports equipment used in the fabrication of integrated circuits. Market cap of $1.95 billion. RSI(14) at 38.92. TTM Diluted EPS at $3.56, MRQ Book Value Per Share at $15.29, Graham number at $35.00 (vs. current price at $27.97, implies a potential upside of 25.12%). Might be undervalued at current levels, with a PEG ratio at 0.69, and P/FCF ratio at 5.97. The stock has gained 18.22% over the last year.
  5. Privatebancorp Inc. (PVTB): Operates as the holding company for The PrivateBank and Trust Company that provides business and personal financial services to middle-market companies and business owners, executives, entrepreneurs, and families in the United States. Market cap of $637.58 million. RSI(14) at 38.53. TTM Diluted EPS at $0.37, MRQ Book Value Per Share at $14.22, Graham number at $10.88 (vs. current price at $8.88, implies a potential upside of 22.53%). The stock is a short squeeze candidate, with a short float at 5.86% (equivalent to 5.31 days of average volume). The stock has performed poorly over the last month, losing 20.86%.
  6. Aeropostale, Inc. (ARO): Designs, markets, and sells casual sportswear and other fashion merchandise under its own brands, principally targeted at customers 11 to 18 years old. Market cap of $902.56 million. RSI(14) at 33.8. TTM Diluted EPS at $1.86, MRQ Book Value Per Share at $4.42, Graham number at $13.60 (vs. current price at $11.19, implies a potential upside of 21.54%). The stock is currently stuck in a downtrend, trading 6.3% below its SMA20, 27.36% below its SMA50, and 49.02% below its SMA200. The stock has performed poorly over the last month, losing 30.43%.
  7. The Washington Post Company (WPO): Operates as a diversified education and media company in the United States and internationally. Market cap of $2.82 billion. RSI(14) at 38.69. TTM Diluted EPS at $24.07, MRQ Book Value Per Share at $341.53, Graham number at $430.07 (vs. current price at $355.76, implies a potential upside of 20.89%). The stock is a short squeeze candidate, with a short float at 10.49% (equivalent to 14.9 days of average volume). The stock has performed poorly over the last month, losing 11%.
  8. Redwood Trust Inc. (RWT): Redwood Trust, Inc., a financial institution, together with its subsidiaries, invests in, finances, and manages residential and commercial real estate loans and securities. Market cap of $988.60 million. RSI(14) at 38.51. TTM Diluted EPS at $0.76, MRQ Book Value Per Share at $13.04, Graham number at $14.93 (vs. current price at $12.56, implies a potential upside of 18.89%). The stock is a short squeeze candidate, with a short float at 6.87% (equivalent to 7.77 days of average volume). The stock has performed poorly over the last month, losing 10.29%.
  9. Navigant Consulting Inc. (NCI): Provides dispute, investigative, economic, operational, risk management, and financial and risk advisory solutions to governmental agencies, legal counsels, and large companies facing the challenges of uncertainty, risk, distress, and significant change in the United States, the United Kingdom, and internationally. Market cap of $495.85 million. RSI(14) at 38.77. TTM Diluted EPS at $0.58, MRQ Book Value Per Share at $9.66, Graham number at $11.23 (vs. current price at $9.49, implies a potential upside of 18.31%). The stock has performed poorly over the last month, losing 16.24%.
  10. Shoe Carnival Inc. (SCVL): Operates as a family footwear retailer. Market cap of $335.36 million. RSI(14) at 34.81. TTM Diluted EPS at $1.95, MRQ Book Value Per Share at $19.73, Graham number at $29.42 (vs. current price at $25.31, implies a potential upside of 16.25%). The stock is currently stuck in a downtrend, trading 7.53% below its SMA20, 15.7% below its SMA50, and 9.04% below its SMA200. It's been a rough couple of days for the stock, losing 7.05% over the last week.

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

Source: 10 Oversold Stocks Undervalued By The Graham Number