Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message| ()  

If you’re looking for ideas on how to search for potentially undervalued stocks, one method comes from the “godfather of value investing” himself, Benjamin Graham. Graham was an author, professor, and former mentor to Warren Buffett.

Graham created an equation that calculates the fair value of stocks based on two fundamental 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.

Stocks trading at significant discounts to this number appear undervalued.

We ran a screen on companies reporting their third-quarter earnings next week and whose stock is rallying above its 20-day, 50-day, and 200-day moving averages. We screened these stocks for those 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 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these companies 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. Loews Corporation (L): Operates primarily as a commercial property and casualty insurance company in the United States. Market cap of $15.95B. The stock is currently trading 13.76% above its 20-day moving average, 14.08% above its 50-day MA, and 3.01% above its 200-day MA. Earnings to be released on 10/31. TTM Diluted EPS at $2.73, MRQ Book Value Per Share at $46.81, Graham number at $53.62 (vs. current price at $39.48, implies a potential upside of 35.82%). The stock has had a couple of great days, gaining 8.34% over the last week.

2. CIGNA Corporation (CI): Operates as a health service organization. Market cap of $12.23B. The stock is currently trading 9.00% above its 20-day moving average, 7.22% above its 50-day MA, and 3.99% above its 200-day MA. Earnings to be released on 11/03. TTM Diluted EPS at $5.88, MRQ Book Value Per Share at $27.93, Graham number at $60.79 (vs. current price at $45.27, implies a potential upside of 34.28%). Might be undervalued at current levels, with a PEG ratio at 0.73, and P/FCF ratio at 10.35. The stock has gained 26.42% over the last year.

3. Portland General Electric Company (POR): Operates as an integrated electric utility in Oregon. Market cap of $1.85B. The stock is currently trading 4.92% above its 20-day moving average, 6.07% above its 50-day MA, and 6.00% above its 200-day MA. Earnings to be released on 11/03. TTM Diluted EPS at $2.19, MRQ Book Value Per Share at $21.83, Graham number at $32.80 (vs. current price at $24.50, implies a potential upside of 33.87%). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 4.33%, current ratio at 1.54, and quick ratio at 1.39. The stock has gained 23.99% over the last year.

4. Medallion Financial Corp. (TAXI): Operates as a specialty finance company in the United States. Market cap of $194.55M. The stock is currently trading 15.45% above its 20-day moving average, 19.80% above its 50-day MA, and 31.14% above its 200-day MA. Earnings to be released on 10/31. TTM Diluted EPS at $0.95, MRQ Book Value Per Share at $9.49, Graham number at $14.24 (vs. current price at $11.13, implies a potential upside of 27.96%). The stock has had a couple of great days, gaining 10.53% over the last week.

5. Hercules Technology Growth Capital, Inc. (HTGC): A private equity, venture capital, and venture debt firm specializing in providing debt and equity to privately held venture capital and private equity backed companies and select publicly-traded companies. Market cap of $416.23M. The stock is currently trading 9.85% above its 20-day moving average, 10.18% above its 50-day MA, and 1.58% above its 200-day MA. Earnings to be released on 11/03. TTM Diluted EPS at $0.66, MRQ Book Value Per Share at $9.87, Graham number at $12.11 (vs. current price at $9.49, implies a potential upside of 27.57%). The stock is a short squeeze candidate, with a short float at 5.64% (equivalent to 8.3 days of average volume). The stock has lost 0.42% over the last year.

6. Entergy Corporation (ETR): Operates as an integrated energy company in the United States. Market cap of $12.26B. The stock is currently trading 5.10% above its 20-day moving average, 7.42% above its 50-day MA, and 4.77% above its 200-day MA. Earnings to be released on 11/01. TTM Diluted EPS at $7.06, MRQ Book Value Per Share at $48.62, Graham number at $87.88 (vs. current price at $68.91, implies a potential upside of 27.53%). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 4.82%, current ratio at 1.72, and quick ratio at 1.24. The stock has lost 1.26% over the last year.

7. Sparton Corp. (SPA): Offers electronic manufacturing services primarily for medical device, defense and security systems, and electronic manufacturing services industries worldwide. Market cap of $89.37M. The stock is currently trading 21.32% above its 20-day moving average, 17.84% above its 50-day MA, and 5.11% above its 200-day MA. Earnings to be released on 11/03. TTM Diluted EPS at $0.73, MRQ Book Value Per Share at $7.33, Graham number at $10.97 (vs. current price at $8.61, implies a potential upside of 27.44%). The stock has had a couple of great days, gaining 8.71% over the last week.

8. California First National Bancorp (CFNB): Operates as the holding company for California First Leasing Corp. Market cap of $178.18M. The stock is currently trading 4.32% above its 20-day moving average, 4.50% above its 50-day MA, and 11.17% above its 200-day MA. Earnings to be released on 11/02. TTM Diluted EPS at $1.05, MRQ Book Value Per Share at $19.16, Graham number at $21.28 (vs. current price at $17.10, implies a potential upside of 24.42%). The stock is a short squeeze candidate, with a short float at 5.15% (equivalent to 30.99 days of average volume). The stock has had a good month, gaining 12.28%.

9. KapStone Paper and Packaging Corporation (KS): Engages in the production and sale of unbleached kraft, linerboard, saturating kraft, and unbleached folding carton boards primarily in the Americas, Europe, and Asia. Market cap of $754.09M. The stock is currently trading 11.99% above its 20-day moving average, 17.19% above its 50-day MA, and 8.57% above its 200-day MA. Earnings to be released on 11/02. TTM Diluted EPS at $1.79, MRQ Book Value Per Share at $9.83, Graham number at $19.90 (vs. current price at $16.28, implies a potential upside of 22.22%). The stock has gained 24.18% over the last year.

10. Sempra Energy (SRE): Engages in the development of energy infrastructure, operation of utilities, and provision of energy-related products and services worldwide. Market cap of $12.98B. The stock is currently trading 5.07% above its 20-day moving average, 6.88% above its 50-day MA, and 6.06% above its 200-day MA. Earnings to be released on 11/03. TTM Diluted EPS at $4.85, MRQ Book Value Per Share at $40.01, Graham number at $66.08 (vs. current price at $54.19, implies a potential upside of 21.93%). The stock has gained 5.65% over the last year.

11. Edison International (EIX): Engages in the supply of electric energy in central, coastal, and southern California. Market cap of $13.03B. The stock is currently trading 7.96% above its 20-day moving average, 11.36% above its 50-day MA, and 11.19% above its 200-day MA. Earnings to be released on 11/02. TTM Diluted EPS at $3.20, MRQ Book Value Per Share at $32.92, Graham number at $48.69 (vs. current price at $39.98, implies a potential upside of 21.77%). The stock has gained 15.18% over the last year.

12. First of Long Island Corp. (FLIC): Operates as a bank holding company for The First National Bank of Long Island that provides various financial services. Market cap of $221.88M. The stock is currently trading 10.83% above its 20-day moving average, 14.39% above its 50-day MA, and 3.91% above its 200-day MA. Earnings to be released on 10/31. TTM Diluted EPS at $2.09, MRQ Book Value Per Share at $19.89, Graham number at $30.58 (vs. current price at $25.30, implies a potential upside of 20.88%). The stock has had a couple of great days, gaining 6.98% over the last week.

13. Bristow Group, Inc. (BRS): Provides helicopter services to the offshore energy industry primarily in Europe, West Africa, North America, Australia, and internationally. Market cap of $1.77B. The stock is currently trading 12.49% above its 20-day moving average, 17.76% above its 50-day MA, and 11.86% above its 200-day MA. Earnings to be released on 10/31. TTM Diluted EPS at $3.59, MRQ Book Value Per Share at $41.88, Graham number at $58.16 (vs. current price at $48.39, implies a potential upside of 20.19%). The stock is a short squeeze candidate, with a short float at 6.23% (equivalent to 7.02 days of average volume). The stock has had a good month, gaining 10.56%.

14. Standard Motor Products Inc. (SMP): Distributes replacement parts for motor vehicles in the automotive aftermarket industry primarily in the United States, Canada, and Latin America. Market cap of $345.87M. The stock is currently trading 8.50% above its 20-day moving average, 18.39% above its 50-day MA, and 18.68% above its 200-day MA. Earnings to be released on 10/31. TTM Diluted EPS at $1.40, MRQ Book Value Per Share at $10.36, Graham number at $18.06 (vs. current price at $15.11, implies a potential upside of 19.56%). This is a risky stock that is significantly more volatile than the overall market (beta = 2.28). The stock has had a good month, gaining 11.27%.

15. Duke Energy Corporation (DUK): Operates as an energy company in the Americas. Market cap of $27.02B. The stock is currently trading 3.23% above its 20-day moving average, 6.37% above its 50-day MA, and 12.65% above its 200-day MA. Earnings to be released on 11/03. TTM Diluted EPS at $1.54, MRQ Book Value Per Share at $16.95, Graham number at $24.23 (vs. current price at $20.30, implies a potential upside of 19.38%). The stock has gained 19.91% over the last year.

16. Employers Holdings, Inc. (EIG): Operates in the commercial property and casualty insurance industry in the United States. Market cap of $597.05M. The stock is currently trading 17.47% above its 20-day moving average, 30.32% above its 50-day MA, and 3.14% above its 200-day MA. Earnings to be released on 11/02. TTM Diluted EPS at $1.19, MRQ Book Value Per Share at $13.17, Graham number at $18.78 (vs. current price at $15.77, implies a potential upside of 19.08%). The stock has had a couple of great days, gaining 6.34% over the last week.

17. Alleghany Corp. (Y): Engages in the property and casualty, and surety insurance business. Market cap of $2.75B. The stock is currently trading 9.41% above its 20-day moving average, 9.61% above its 50-day MA, and 0.57% above its 200-day MA. Earnings to be released on 10/31. TTM Diluted EPS at $17.94, MRQ Book Value Per Share at $340.97, Graham number at $370.99 (vs. current price at $312.30, implies a potential upside of 18.79%). The stock has had a couple of great days, gaining 7.88% over the last week.

18. Mercury General Corporation (MCY): Engages in writing private passenger and commercial automobile insurance in the United States. Market cap of $2.36B. The stock is currently trading 11.95% above its 20-day moving average, 16.23% above its 50-day MA, and 16.39% above its 200-day MA. Earnings to be released on 10/31. TTM Diluted EPS at $3.45, MRQ Book Value Per Share at $33.67, Graham number at $51.12 (vs. current price at $43.05, implies a potential upside of 18.75%). The stock has had a couple of great days, gaining 6.61% over the last week.

19. Territorial Bancorp Inc. (TBNK): Operates as the bank holding company for Territorial Savings Bank, a federally-chartered savings bank that provides a range of financial services to individuals, families, and businesses in Hawaii. Market cap of $224.88M. The stock is currently trading 3.82% above its 20-day moving average, 3.65% above its 50-day MA, and 2.40% above its 200-day MA. Earnings to be released on 10/31. TTM Diluted EPS at $1.13, MRQ Book Value Per Share at $20.73, Graham number at $22.96 (vs. current price at $19.42, implies a potential upside of 18.22%). The stock has gained 16.99% over the last year.

20. Great Plains Energy Incorporated (GXP): Engages in the generation, transmission, distribution, and sale of electricity in the United States. Market cap of $2.82B. The stock is currently trading 6.55% above its 20-day moving average, 9.45% above its 50-day MA, and 8.28% above its 200-day MA. Earnings to be released on 11/03. TTM Diluted EPS at $1.24, MRQ Book Value Per Share at $21.23, Graham number at $24.34 (vs. current price at $20.76, implies a potential upside of 17.23%). The stock has gained 15.14% over the last year.

*Author owns shares of EIX and has no plans to change his position in the next 72 hours. BVPS and EPS data sourced from Yahoo Finance, all other data sourced from Finviz.

Source: 20 Rallying Companies Releasing Earnings Next Week Undervalued By Graham