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Do you prefer to search for potentially undervalued stocks? For ideas on how to start your own value search, we ran a screen you may be interested in.

We began by screening for stocks with strong profitability compared to industry peers, with higher gross, operating, and pretax margins than their industry averages by at least 5% on each margin. This indicates that these companies are taking a greater percentage of their revenues as profits, and they also have stronger control over their cost structures.

We then screened for those that also appear undervalued relative to the Graham Number. The Graham Number is 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.

(click to enlarge)

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 the Graham Number.

1. Horizon Technology Finance Corporation (NASDAQ:HRZN): Primarily lends to and invests in development stage companies in the United States. Market cap at $124.91M, most recent closing price at $16.35. TTM gross margin at 56.23% vs. industry average at 33.28%. TTM operating margin at 56.23% vs. industry average at 30.54%. TTM pretax margin at 39.28% vs. industry average at 21.68%. Diluted TTM earnings per share at 1.3, and a MRQ book value per share value at 16.89, implies a Graham Number fair value = sqrt(22.5*1.3*16.89) = $22.23. Based on the stock's price at $16.24, this implies a potential upside of 36.86% from current levels.

2. Helmerich& Payne Inc. (NYSE:HP): Engages in the contract drilling of oil and gas wells in the United States and internationally. Market cap at $5.B, most recent closing price at $46.57. TTM gross margin at 43.75% vs. industry average at 34.38%. TTM operating margin at 27.58% vs. industry average at 18.73%. TTM pretax margin at 27.9% vs. industry average at 14.16%. Diluted TTM earnings per share at 4.62, and a MRQ book value per share value at 33.54, implies a Graham Number fair value = sqrt(22.5*4.62*33.54) = $59.05. Based on the stock's price at $43.47, this implies a potential upside of 35.83% from current levels.

3. Discover Financial Services (NYSE:DFS): Operates as a credit card issuer and electronic payment services company primarily in the United States. Market cap at $17.16B, most recent closing price at $32.35. TTM gross margin at 50.94% vs. industry average at 34.55%. TTM operating margin at 49.89% vs. industry average at 31.68%. TTM pretax margin at 44.05% vs. industry average at 26.04%. Diluted TTM earnings per share at 4.4, and a MRQ book value per share value at 16.66, implies a Graham Number fair value = sqrt(22.5*4.4*16.66) = $40.61. Based on the stock's price at $31.52, this implies a potential upside of 28.85% from current levels.

4. Public Service Enterprise Group Inc. (NYSE:PEG): Operates in the energy industry primarily in the northeastern and mid Atlantic United States. Market cap at $15.53B, most recent closing price at $30.70. TTM gross margin at 36.12% vs. industry average at 27.34%. TTM operating margin at 27.% vs. industry average at 17.89%. TTM pretax margin at 21.15% vs. industry average at 12.54%. Diluted TTM earnings per share at 2.89, and a MRQ book value per share value at 21, implies a Graham Number fair value = sqrt(22.5*2.89*21) = $36.95. Based on the stock's price at $31.68, this implies a potential upside of 16.64% from current levels.

5. BlackRock, Inc. (NYSE:BLK): Provides its services to institutional, intermediary, and individual investors. Market cap at $30.07B, most recent closing price at $167.50. TTM gross margin at 40.45% vs. industry average at 33.28%. TTM operating margin at 37.15% vs. industry average at 30.54%. TTM pretax margin at 34.92% vs. industry average at 21.68%. Diluted TTM earnings per share at 12.63, and a MRQ book value per share value at 141.04, implies a Graham Number fair value = sqrt(22.5*12.63*141.04) = $200.20. Based on the stock's price at $171.91, this implies a potential upside of 16.46% from current levels.

*BVPS and EPS data sourced from Yahoo! Finance, profitability data sourced from Google 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.