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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 semiconductor companies the also appear undervalued to earnings growth, with PEG below 1.

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

List sorted by potential upside implied by Graham number.

1. Teradyne Inc. (NYSE:TER): Provides automatic test equipment products and services worldwide. Market cap of $2.18B. PEG at 0.49. TTM Diluted EPS at $1.73, MRQ Book Value Per Share at $7.17, Graham number at $16.71 (vs. current price at $11.98, implies a potential upside of 39.45%). The stock is a short squeeze candidate, with a short float at 11.64% (equivalent to 5.56 days of average volume). The stock has gained 26.08% over the last year.

2. Lam Research Corporation (NASDAQ:LRCX): Engages in designing, manufacturing, marketing, and servicing semiconductor processing equipment used in the fabrication of integrated circuits. Market cap of $4.56B. PEG at 0.64. TTM Diluted EPS at $5.79, MRQ Book Value Per Share at $19.99, Graham number at $51.03 (vs. current price at $37.23, implies a potential upside of 37.07%). The stock has gained 0.74% over the last year.

3. Applied Materials Inc. (NASDAQ:AMAT): Provides manufacturing equipment, services, and software to the semiconductor, flat panel display, solar photovoltaic (PV), and related industries worldwide. Market cap of $14.30B. PEG at 0.77. TTM Diluted EPS at $1.45, MRQ Book Value Per Share at $6.49, Graham number at $14.55 (vs. current price at $11.09, implies a potential upside of 31.21%). The stock has gained 3.04% over the last year.

4. Tessera Technologies Inc. (NASDAQ:TSRA): Develops and licenses miniaturization technologies for chip-scale, multichip, and wafer-level packaging, which enables companies to produce chips for digital audio players, digital cameras, personal computers, personal digital assistants, video game consoles, and mobile phones. Market cap of $695.46M. PEG at 0.50. TTM Diluted EPS at $1.09, MRQ Book Value Per Share at $13.82, Graham number at $18.41 (vs. current price at $14.17, implies a potential upside of 29.92%). The stock has lost 14.71% over the last year.

5. Cirrus Logic Inc. (NASDAQ:CRUS): Develops high-precision analog and mixed-signal integrated circuits (ICs). Market cap of $939.53M. PEG at 0.27. TTM Diluted EPS at $2.71, MRQ Book Value Per Share at $6.04, Graham number at $19.19 (vs. current price at $14.84, implies a potential upside of 29.32%). It's been a rough couple of days for the stock, losing 5.07% over the last week.

6. Novellus Systems, Inc. (NASDAQ:NVLS): Develops, manufactures, sells, and supports equipment used in the fabrication of integrated circuits. Market cap of $1.93B. PEG at 0.68. TTM Diluted EPS at $3.56, MRQ Book Value Per Share at $15.29, Graham number at $35.00 (vs. current price at $28.08, implies a potential upside of 24.63%). The stock has gained 16.65% over the last year.

7. Diodes Incorporated (NASDAQ:DIOD):
Makes and distributes standard semiconductor products to manufacturers in the consumer electronic, computer, communications, industrial, and automotive markets. Market cap of $856.37M. PEG at 0.74. TTM Diluted EPS at $1.78, MRQ Book Value Per Share at $13.20, Graham number at $22.99 (vs. current price at $19.12, implies a potential upside of 20.25%). This is a risky stock that is significantly more volatile than the overall market (beta = 2.13). The stock is a short squeeze candidate, with a short float at 7.03% (equivalent to 5.95 days of average volume). It's been a rough couple of days for the stock, losing 6.19% over the last week.

8. KLA-Tencor Corporation (NASDAQ:KLAC):
Engages in the design, manufacture, and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Market cap of $5.91B. PEG at 0.80. TTM Diluted EPS at $4.66, MRQ Book Value Per Share at $17.12, Graham number at $42.37 (vs. current price at $35.78, implies a potential upside of 18.41%). The stock has gained 25.74% over the last year.

9. Entegris, Inc. (NASDAQ:ENTG): Develops, manufactures, and supplies products and materials used in processing and manufacturing in the semiconductor and other high-technology industries worldwide. Market cap of $963.90M. PEG at 0.82. TTM Diluted EPS at $0.82, MRQ Book Value Per Share at $4.00, Graham number at $8.59 (vs. current price at $7.28, implies a potential upside of 18.0%). It's been a rough couple of days for the stock, losing 5.05% over the last week.

*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.

Source: 9 Semiconductors Undervalued By Earnings Growth And Graham