10 Rallying Large Cap Stocks Undervalued By Graham

|
 |  Includes: ACE, AEP, AET, CB, COP, ETR, STT, TRV, TWX, VOD
by: Kapitall

Value investors seek to find stocks that they believe are trading below their fair value, with the assumption that they will soon rise to their fair value, generating a profit.

One way to look for potentially undervalued stocks is with an equation from the “godfather of value investing” and former mentor to Warren Buffett, Benjamin Graham.

He created the Graham equation, which calculates a stock’s maximum fair value based off of its EPS and book value per share (BVPS). Stocks trading below their Graham Number may be undervalued.

Graham Number = SQRT(22.5 x TTM EPS x MRQ BVPS)

The equation assumes that P/E should not be higher than 15 and P/BV should not be higher than 1.5.

We ran a screen on large-cap stocks rallying above their 20-day, 50-day, and 200-day moving averages for those trading well below their Graham Numbers, possibly indicating that they are undervalued.

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 point for your own analysis.

List sorted by potential upside implied by Graham Number.

1. Aetna Inc. (NYSE:AET): Operates as a diversified health care benefits company in the United States. Market cap of $14.82B. The stock is currently trading at 1.51% above its 20-Day SMA, 5.30% above its 50-Day SMA, and 3.16% above its 200-Day SMA. TTM Diluted EPS at $4.70, MRQ Book Value Per Share at $29.06, Graham number at $55.44 (vs. current price at $40.91, implies a potential upside of 35.51%). The stock has gained 35.19% over the last year.

2. Entergy Corporation (NYSE:ETR): Operates as an integrated energy company in the United States. Market cap of $12.55B. The stock is currently trading at 2.87% above its 20-Day SMA, 5.33% above its 50-Day SMA, and 8.23% above its 200-Day SMA. TTM Diluted EPS at $7.92, MRQ Book Value Per Share at $50.92, Graham number at $95.26 (vs. current price at $71.27, implies a potential upside of 33.66%). The stock has gained 6.42% over the last year.

3. ACE Limited (NYSE:ACE): Provides a range of insurance and reinsurance products to insureds worldwide. Market cap of $23.39B. The stock is currently trading at 1.65% above its 20-Day SMA, 3.15% above its 50-Day SMA, and 7.15% above its 200-Day SMA. TTM Diluted EPS at $5.38, MRQ Book Value Per Share at $70.60, Graham number at $92.45 (vs. current price at $69.37, implies a potential upside of 33.26%). The stock has gained 19.15% over the last year.

4. The Travelers Companies, Inc. (NYSE:TRV): Provides various commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals primarily in the United States. Market cap of $23.12B. The stock is currently trading at 1.70% above its 20-Day SMA, 3.44% above its 50-Day SMA, and 0.98% above its 200-Day SMA. TTM Diluted EPS at $3.91, MRQ Book Value Per Share at $60.98, Graham number at $73.24 (vs. current price at $56.02, implies a potential upside of 30.75%). The stock has gained 5.24% over the last year.

5. ConocoPhillips (NYSE:COP): Operates as an integrated energy company worldwide. Market cap of $95.53B. The stock is currently trading at 2.37% above its 20-Day SMA, 4.23% above its 50-Day SMA, and 1.63% above its 200-Day SMA. TTM Diluted EPS at $7.80, MRQ Book Value Per Share at $49.56, Graham number at $93.26 (vs. current price at $71.95, implies a potential upside of 29.62%). The stock has gained 15.56% over the last year.

6. State Street Corp. (NYSE:STT): Provides various financial services and products to the institutional investors worldwide. Market cap of $20.14B. The stock is currently trading at 4.78% above its 20-Day SMA, 8.83% above its 50-Day SMA, and 1.19% above its 200-Day SMA. TTM Diluted EPS at $3.19, MRQ Book Value Per Share at $38.84, Graham number at $52.80 (vs. current price at $40.93, implies a potential upside of 29.00%). The stock has lost 9.63% over the last year.

7. The Chubb Corporation (NYSE:CB): Provides property and casualty insurance to businesses and individuals. Market cap of $19.14B. The stock is currently trading at 4.10% above its 20-Day SMA, 5.76% above its 50-Day SMA, and 10.79% above its 200-Day SMA. TTM Diluted EPS at $6.20, MRQ Book Value Per Share at $56.24, Graham number at $88.57 (vs. current price at $68.82, implies a potential upside of 28.70%). The stock has gained 19.46% over the last year.

8. Vodafone Group plc (NASDAQ:VOD): Provides mobile communications in Europe, Africa, the Asia Pacific, the Middle East, and the United States. Market cap of $143.58B. The stock is currently trading at 1.23% above its 20-Day SMA, 2.68% above its 50-Day SMA, and 4.80% above its 200-Day SMA. TTM Diluted EPS at $2.13, MRQ Book Value Per Share at $25.72, Graham number at $35.11 (vs. current price at $27.28, implies a potential upside of 28.70%). The stock has gained 11.48% over the last year.

9. American Electric Power Co., Inc. (NYSE:AEP): Engages in the generation, transmission, and distribution of electric power to retail customers. Market cap of $19.19B. The stock is currently trading at 2.54% above its 20-Day SMA, 3.45% above its 50-Day SMA, and 8.76% above its 200-Day SMA. TTM Diluted EPS at $3.76, MRQ Book Value Per Share at $30.34, Graham number at $50.66 (vs. current price at $39.73, implies a potential upside of 27.52%). The stock has gained 17.2% over the last year.

10. Time Warner Inc. (NYSE:TWX): Operates as a media and entertainment company in the United States and internationally. Market cap of $34.63B. The stock is currently trading at 2.42% above its 20-Day SMA, 3.98% above its 50-Day SMA, and 2.71% above its 200-Day SMA. TTM Diluted EPS at $2.63, MRQ Book Value Per Share at $30.67, Graham number at $42.60 (vs. current price at $34.60, implies a potential upside of 23.13%). The stock has gained 11.94% over the last year.

*BVPS and EPS 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.