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One important indicator of upside technical momentum is the “golden cross,” in which a stock’s 50-day moving average crosses above its 200-day MA. This indicates recent upside momentum that may persist.

It’s especially interesting to find stocks that appear undervalued while exhibiting upside momentum, because they may be pricing in this difference in value. The Graham equation is one way to search for potentially undervalued stocks.

Benjamin Graham, known as the Godfather of Value Investing, 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 a significant discount to their Graham numbers may be undervalued.

We ran a screen on stocks exhibiting the golden cross for those that also appear undervalued by their Graham numbers.

‪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. Knight Capital Group Inc. (NYSE:KCG): Provides access to the capital markets across multiple asset classes to buy-and sell-side firms, and corporations, as well as offers capital markets services to corporate issuers and private companies primarily in the United States. Market cap of $1.27B. SMA50 at $12.76 vs. SMA200 at $12.59 (current price at $12.63). TTM Diluted EPS at $0.89, MRQ Book Value Per Share at $15.79, Graham number at $17.78 (vs. current price at $12.81, implies a potential upside of 38.81%). The stock has lost 1.69% over the last year.

2. GameStop Corp. (NYSE:GME): Operates as a retailer of video game products and personal computer (PC) entertainment software. Market cap of $3.64B. SMA50 at $23.88 vs. SMA200 at $23.60 (current price at $26.00). TTM Diluted EPS at $2.74, MRQ Book Value Per Share at $21.27, Graham number at $36.21 (vs. current price at $26.20, implies a potential upside of 38.21%). Might be undervalued at current levels, with a PEG ratio at 0.84, and P/FCF ratio at 8.07. The stock is a short squeeze candidate, with a short float at 27.71% (equivalent to 9.44 days of average volume). The stock has gained 33.33% over the last year.

3. Citizens & Northern Corp. (NASDAQ:CZNC): Operates as the holding for Citizens & Northern Bank, which provides various banking and mortgage products and services to individual and corporate customers in north central Pennsylvania and southern New York. Market cap of $205.33M. SMA50 at $15.47 vs. SMA200 at $15.32 (current price at $16.95). TTM Diluted EPS at $1.82, MRQ Book Value Per Share at $13.27, Graham number at $23.31 (vs. current price at $16.90, implies a potential upside of 37.94%). The stock has had a good month, gaining 13.73%.

4. Portland General Electric Company (NYSE:POR): Operates as an integrated electric utility in Oregon. Market cap of $1.86B. SMA50 at $23.69 vs. SMA200 at $23.67 (current price at $24.76). TTM Diluted EPS at $2.19, MRQ Book Value Per Share at $21.83, Graham number at $32.80 (vs. current price at $24.66, implies a potential upside of 33.0%). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 4.3%, current ratio at 1.54, and quick ratio at 1.39. The stock has gained 23.3% over the last year.

5. The Chubb Corporation (NYSE:CB): Provides property and casualty insurance to businesses and individuals. Market cap of $19.62B. SMA50 at $61.24 vs. SMA200 at $60.92 (current price at $68.19). TTM Diluted EPS at $6.20, MRQ Book Value Per Share at $55.23, Graham number at $87.78 (vs. current price at $68.62, implies a potential upside of 27.92%). The stock has had a good month, gaining 13.38%.

6. Edison International (NYSE:EIX): Engages in the supply of electric energy in central, coastal, and southern California. Market cap of $13.27B. SMA50 at $37.29 vs. SMA200 at $37.18 (current price at $41.11). TTM Diluted EPS at $3.20, MRQ Book Value Per Share at $32.92, Graham number at $48.69 (vs. current price at $40.72, implies a potential upside of 19.56%). The stock has gained 14.16% over the last year.

7. Mercury General Corporation (NYSE:MCY): Engages in writing private passenger and commercial automobile insurance in the United States. Market cap of $2.42B. SMA50 at $38.88 vs. SMA200 at $38.53 (current price at $44.40). TTM Diluted EPS at $3.45, MRQ Book Value Per Share at $33.67, Graham number at $51.12 (vs. current price at $44.18, implies a potential upside of 15.72%). The stock has had a couple of great days, gaining 6.3% over the last week.

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

Source: 7 Momentum Plays Undervalued By Their Graham Numbers