Do you like to invest with a stock's technical momentum trends? For ideas on how to start your search, we ran a screen.
We began by screening the S&P 500 for stocks exhibiting the technical signal "golden cross," in which the stocks' 50-day moving average crosses above its 200-day MA, indicating recent momentum to the upside.
We then screened these stocks for those that appear undervalued relative to the Graham Number.
The Graham Number was created by the "godfather of value investing" Benjamin Graham as a calculation for a stock's maximum fair value. It is based off of a stock's EPS and book value per share (BVPS).
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. Stocks trading well below their Graham Number may be undervalued.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the 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 will continue moving higher? Use this list as a starting point for your own analysis.
1. Archer Daniels Midland Company (NYSE:ADM): Procures, transports, stores, processes, and merchandises agricultural commodities and products in the United States and internationally. SMA50 at $29.30 vs. SMA200 at $28.80 (current price at $32.04). Diluted TTM earnings per share at 2.27, and a MRQ book value per share value at 27.16, implies a Graham Number fair value = sqrt(22.5*2.27*27.16) = $37.25. Based on the stock's price at $31.35, this implies a potential upside of 18.8% from current levels.
2. M&T Bank Corp. (NYSE:MTB): Operates as the holding company for M&T Bank and M&T Bank, National Association that provide commercial and retail banking services to individuals, corporations and other businesses, and institutions. SMA50 at $79.03 vs. SMA200 at $77.80 (current price at $81.76). Diluted TTM earnings per share at 6.35, and a MRQ book value per share value at 66.85, implies a Graham Number fair value = sqrt(22.5*6.35*66.85) = $97.73. Based on the stock's price at $82.92, this implies a potential upside of 17.86% from current levels.
3. Northrop Grumman Corporation (NYSE:NOC): Provides products, services, and solutions in aerospace, electronics, information systems, shipbuilding, and technical service sectors. SMA50 at $58.71 vs. SMA200 at $57.99 (current price at $60.72). Diluted TTM earnings per share at 7.52, and a MRQ book value per share value at 40.71, implies a Graham Number fair value = sqrt(22.5*7.52*40.71) = $82.99. Based on the stock's price at $60.08, this implies a potential upside of 38.14% from current levels.
*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.