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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).

We ran a screen on dividend stocks with low amounts of company debt for those that are trading at significant discounts 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 (NYSEARCA:SPY) index over the last month.

(Click chart for more detail)



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. National Bankshares Inc. (NASDAQ:NKSH): Operates as the holding company for the National Bank of Blacksburg (NBB), a chartered national bank that provides a range of retail and commercial banking services to individuals, businesses, non-profits, and local governments in Virginia. Market cap of $163.65M. Dividend yield at 4.07%, payout ratio at 41.06%. Total debt/equity at 0. TTM Diluted EPS at $2.31, MRQ Book Value Per Share at $19.65, Graham number at $31.96 (vs. current price at $23.69, implies a potential upside of 34.90%). The stock is a short squeeze candidate, with a short float at 5.89% (equivalent to 26.99 days of average volume). The stock has performed poorly over the last month, losing 12.41%.

2. German American Bancorp Inc. (NASDAQ:GABC): Operates as the holding company for German American Bancorp that offers retail and commercial banking, mortgage banking, and financial planning services primarily in southern Indiana. Market cap of $198.42M. Dividend yield at 3.55%, payout ratio at 40.82%. Total debt/equity at 0. TTM Diluted EPS at $1.38, MRQ Book Value Per Share at $12.71, Graham number at $19.87 (vs. current price at $15.20, implies a potential upside of 30.70%). It's been a rough couple of days for the stock, losing 5.57% over the last week.

3. Lawson Products Inc. (NASDAQ:LAWS): Distributes products and services to the industrial, commercial, institutional, and governmental maintenance, repair, and operations marketplace in the United States, and Canada. Market cap of $118.09M. Dividend yield at 3.48%, payout ratio at 41.68%. Total debt/equity at 0. TTM Diluted EPS at $0.69, MRQ Book Value Per Share at $16.92, Graham number at $16.21 (vs. current price at $14.00, implies a potential upside of 15.77%). It's been a rough couple of days for the stock, losing 12.78% over the last week.

4. Chevron Corp. (NYSE:CVX): Engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. Market cap of $180.29B. Dividend yield at 3.47%, payout ratio at 25.66%. Total debt/equity at 0.10. TTM Diluted EPS at $11.45, MRQ Book Value Per Share at $57.74, Graham number at $121.96 (vs. current price at $89.50, implies a potential upside of 36.27%). It's been a rough couple of days for the stock, losing 9.66% over the last week.

5. LSI Industries Inc. (NASDAQ:LYTS): Provides corporate visual image solutions primarily in the United States, Canada, Australia, and Latin America. Market cap of $155.36M. Dividend yield at 3.10%, payout ratio at 44.41%. Total debt/equity at 0.0. TTM Diluted EPS at $0.44, MRQ Book Value Per Share at $6.29, Graham number at $7.89 (vs. current price at $6.25, implies a potential upside of 26.26%). It's been a rough couple of days for the stock, losing 6.51% over the last week.

6. Ecology & Environment, Inc. (NASDAQ:EEI): Provides professional services to the government and private sectors worldwide. Market cap of $67.20M. Dividend yield at 3.03%, payout ratio at 26.22%. Total debt/equity at 0.04. TTM Diluted EPS at $1.64, MRQ Book Value Per Share at $11.66, Graham number at $20.74 (vs. current price at $15.75, implies a potential upside of 31.70%). The stock has gained 36.74% over the last year.

7. Rimage Corp. (RIMG): Provides workflow-integrated digital publishing systems that are used by businesses to produce recordable CD, DVD, and blu-ray discs with customized content and durable disc labeling. Market cap of $125.48M. Dividend yield at 3.02%, payout ratio at 24.93%. Total debt/equity at 0. TTM Diluted EPS at $0.79, MRQ Book Value Per Share at $13.62, Graham number at $15.56 (vs. current price at $13.31, implies a potential upside of 16.90%). It's been a rough couple of days for the stock, losing 5.49% over the last week.

8. Thor Industries Inc. (NYSE:THO): Manufactures and sells a range of recreation vehicles and small and mid-size buses, as well as related parts and accessories in the United States and Canada. Market cap of $1.13B. Dividend yield at 2.96%, payout ratio at 18.50%. Total debt/equity at 0.0. TTM Diluted EPS at $2.02, MRQ Book Value Per Share at $14.41, Graham number at $25.59 (vs. current price at $19.03, implies a potential upside of 34.48%). This is a risky stock that is significantly more volatile than the overall market (beta = 2.05). The stock is a short squeeze candidate, with a short float at 12.49% (equivalent to 8.44 days of average volume). It's been a rough couple of days for the stock, losing 8.16% over the last week.

9. Miller Industries Inc. (NYSE:MLR): Engages in the manufacture and sale of vehicle towing and recovery equipment in North America and internationally. Market cap of $207.41M. Dividend yield at 2.76%, payout ratio at 14.43%. Total debt/equity at 0. TTM Diluted EPS at $1.61, MRQ Book Value Per Share at $13.73, Graham number at $22.30 (vs. current price at $17.40, implies a potential upside of 28.17%). It's been a rough couple of days for the stock, losing 8.42% over the last week.

10. Barrett Business Services Inc. (NASDAQ:BBSI): Offers various human resource management services to small and medium-sized businesses in the United States. Market cap of $140.81M. Dividend yield at 2.59%, payout ratio at 22.63%. Total debt/equity at 0. TTM Diluted EPS at $1.55, MRQ Book Value Per Share at $10.04, Graham number at $18.71 (vs. current price at $14.00, implies a potential upside of 33.66%). It's been a rough couple of days for the stock, losing 6.71% 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: 10 Low-Debt Dividend Stocks Undervalued By The Graham Number