Seeking Alpha
Recommended for you:
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message|
( followers)  

Do you worry about risk when choosing among stocks? One idea is to consider a stock's recent trading volatility.

We ran a screen on the large-cap sector for stocks with low volatility over the last month, with less than 2% average intra-day volatility over the last 30 days.

We then screened these names for those undervalued by the Graham Number, a measure of maximum fair value created by the "godfather of value investing" Benjamin Graham.

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 market cap over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

Do you think these names are less risky and 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. ConocoPhillips (COP): Operates as an integrated energy company worldwide. Market cap at $94.54B. Price at $73.50. Average intra-day volatility over the last month at 1.45%. Diluted TTM earnings per share at 8.97, and a MRQ book value per share value at 50.73, implies a Graham Number fair value = sqrt(22.5*8.97*50.73) = $101.19. Based on the stock's price at $73.63, this implies a potential upside of 37.42% from current levels.

2. Northrop Grumman Corporation (NOC): Provides products, services, and solutions in aerospace, electronics, information systems, shipbuilding, and technical service sectors. Market cap at $15.63B. Price at $62.18. Average intra-day volatility over the last month at 1.24%. 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 $60.81, this implies a potential upside of 36.48% from current levels.

3. Loews Corporation (L): Operates primarily as a commercial property and casualty insurance company in the United States. Market cap at $15.84B. Price at $39.79. Average intra-day volatility over the last month at 1.27%. Diluted TTM earnings per share at 2.63, and a MRQ book value per share value at 47.49, implies a Graham Number fair value = sqrt(22.5*2.63*47.49) = $53.01. Based on the stock's price at $38.91, this implies a potential upside of 36.24% from current levels.

4. PPL Corporation (PPL): Generates and sells electricity; and delivers natural gas to approximately 5.3 million utility customers primarily in the northeastern and northwestern US. Market cap at $15.70B. Price at $26.98. Average intra-day volatility over the last month at 1.20%. Diluted TTM earnings per share at 2.7, and a MRQ book value per share value at 18.72, implies a Graham Number fair value = sqrt(22.5*2.7*18.72) = $33.72. Based on the stock's price at $26.77, this implies a potential upside of 25.97% from current levels.

5. Public Service Enterprise Group Inc. (PEG): Operates in the energy industry primarily in the northeastern and mid Atlantic United States. Market cap at $15.34B. Price at $30.25. Average intra-day volatility over the last month at 1.27%. Diluted TTM earnings per share at 2.96, and a MRQ book value per share value at 20.3, implies a Graham Number fair value = sqrt(22.5*2.96*20.3) = $36.77. Based on the stock's price at $29.69, this implies a potential upside of 23.84% from current levels.

6. The Chubb Corporation (CB): Provides property and casualty insurance to businesses and individuals. Market cap at $19.25B. Price at $71.21. Average intra-day volatility over the last month at 1.19%. Diluted TTM earnings per share at 5.76, and a MRQ book value per share value at 57.16, implies a Graham Number fair value = sqrt(22.5*5.76*57.16) = $86.07. Based on the stock's price at $69.66, this implies a potential upside of 23.56% from current levels.

7. The Travelers Companies, Inc. (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 at $23.43B. Price at $59.88. Average intra-day volatility over the last month at 1.21%. Diluted TTM earnings per share at 3.37, and a MRQ book value per share value at 62.31, implies a Graham Number fair value = sqrt(22.5*3.37*62.31) = $68.74. Based on the stock's price at $58.12, this implies a potential upside of 18.27% from current levels.

8. Sempra Energy (SRE): Engages in the development of energy infrastructure, operation of utilities, and provision of energy-related products and services worldwide. Market cap at $15.42B. Price at $63.65. Average intra-day volatility over the last month at 1.46%. Diluted TTM earnings per share at 5.62, and a MRQ book value per share value at 41.01, implies a Graham Number fair value = sqrt(22.5*5.62*41.01) = $72.01. Based on the stock's price at $62.39, this implies a potential upside of 15.42% from current levels.

*BVPS and EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.

Source: 8 Low-Risk Large Caps Undervalued By The Graham Number