6 Stocks Trading Near Highs Undervalued By Graham

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 |  Includes: DTE, DUK, EIX, FCAP, NRIM, SRE
by: Kapitall

In the never-ending search for potentially undervalued stocks, one method is an equation from the “godfather of value investing,” Benjamin Graham. Graham was also a former mentor to Warren Buffett, whom he taught at Columbia Business School.

The equation calculates what is known as the “Graham number,” which is the maximum fair value for a stock. Any stock trading at a significant discount to this number is considered undervalued by the equation.

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 this equation to screen for potentially undervalued stocks among the universe of stocks trading within 5% of their 52-week highs.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the 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 to enlarge


Do you think these stocks will break through their 52-week highs? Use this list as a starting point for your own analysis.

List sorted by potential upside implied by Graham number.

1. Northrim Bancorp Inc. (NASDAQ:NRIM): Provides a range of banking products and services to businesses, professionals and individuals in Alaska. Market cap of $123.46M. TTM Diluted EPS at $1.64, MRQ Book Value Per Share at $18.96, Graham number at $26.45 (vs. current price at $19.00, implies a potential upside of 39.21%). The stock has gained 17.58% over the last year.

2. Sempra Energy (NYSE:SRE):
Engages in the development of energy infrastructure, operation of utilities and provision of energy-related products and services worldwide. Market cap of $12.53B. TTM Diluted EPS at $4.85, MRQ Book Value Per Share at $40.01, Graham number at $66.08 (vs. current price at $51.81, implies a potential upside of 27.54%). The stock has gained 0.6% over the last year.

*3. Edison International (NYSE:EIX):
Engages in the supply of electric energy in central, coastal and southern California. Market cap of $12.35B. TTM Diluted EPS at $3.20, MRQ Book Value Per Share at $32.92, Graham number at $48.69 (vs. current price at $38.53, implies a potential upside of 26.36%). The stock has gained 9.03% over the last year.

4. First Capital Inc. (NASDAQ:FCAP):
Operates as the bank holding company for First Harrison Bank that provides various banking services to individuals and business customers. Market cap of $50.22M. TTM Diluted EPS at $1.34, MRQ Book Value Per Share at $17.78, Graham number at $23.15 (vs. current price at $18.84, implies a potential upside of 22.89%). The stock has gained 26.49% over the last year.

5. Duke Energy Corporation (NYSE:DUK):
Operates as an energy company in the Americas. Market cap of $26.77B. TTM Diluted EPS at $1.54, MRQ Book Value Per Share at $16.95, Graham number at $24.23 (vs. current price at $20.15, implies a potential upside of 20.27%). The stock has gained 20.2% over the last year.

6. DTE Energy Co. (NYSE:DTE):
Operates as an electric and natural gas utility company in Michigan. Market cap of $8.55B. TTM Diluted EPS at $4.09, MRQ Book Value Per Share at $40.07, Graham number at $60.72 (vs. current price at $50.78, implies a potential upside of 19.58%). The stock has gained 12.08% over the last year.

*Author owns shares of EIX and has no intention of changing his position in the next 72 hours. EPS and BVPS data sourced from Yahoo! Finance, all other data sourced from Finviz. Data sourced Oct 18.

Disclosure: I am long EIX.