The latest US economic data showed a mix of the good, the bad and the ugly. So where can investors find reliable value given these fluctuating conditions? We decided to search for companies that look undervalued, a common indication of a good buying opportunity, and also those that are attracting large investors.
To create this list, we first ran a search among companies in the US based on each stock's Graham Number. The Graham Number is a measure of maximum fair value based on a stock's EPS and book value per share (BVPS) created by the champion of value investing Benjamin Graham.
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 and considered an attractive buy when compared to other defensive criteria.
Next we looked for evidence of bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these companies to outperform into the future.
To narrow down our results we then searched for those with favorable debt levels, limiting our results to those with debt-to-equity ratios below 0.03.
We were left with three companies on our list.
For an interactive version of this chart, click on the image below. One year returns sourced from Zacks Investment Research.
Do you take metrics like a stock's Graham number into account before investing? Use the list below as a starting point for your own analysis.
1. The First Bancorp, Inc. (NASDAQ:FNLC): Provides various banking services to individual and corporate customers in coastal Maine.
- Market cap at $169.39M, most recent closing price at $15.89
- Total debt/equity: 0.0
- Net institutional purchases in the current quarter at 1.1M shares, which represents about 11.45% of the company's float of 9.61M shares. The top holders of the stock are Thomson Horstmann & Bryant, Inc. (4.54%) and Manulife Assest Management (US) LLC (2.55%).
- Diluted TTM earnings per share at 1.21, and a MRQ book value per share value at 14.43, implies a Graham Number fair value = sqrt(22.5*1.21*14.43) = $19.82. Based on the stock's price at $16., this implies a potential upside of 23.88% from current levels.
FNLC has returned -7.02% since 4/30/13, and is one of the worst performing stocks in its industry. The stock is falling behind companies like Enterprise Bancorp Inc. (NASDAQ:EBTC), Signature Bank (NASDAQ:SBNY) and Camden National Corp. (NASDAQ:CAC), which returned 3.75%, 8.20% and 12.97%, respectively, during the same time period.
The company's earnings growth looks weak, with EPS growing by 6.73% over the last year. This is considerably lower than competitors like Susquehanna Bancshares, Inc. (NASDAQ:SUSQ) (EPS growth over the last year at 91.71%) and M&T Bank Corporation (NYSE:MTB) (EPS growth over the last year at 18.75%), but still better than Northeast Bancorp (NASDAQ:NBN) (EPS growth over the last year at -96.90%).
FNLC's earnings for the first quarter of 2013 disappointed investors, with net income down 2.0% compared to Q1 2012, and fully diluted earnings per share at $0.27, a drop of 3.6% compared to the same time last year.
2. TeleNav, Inc. (NASDAQ:TNAV): Provides location based services (LBS) for consumers and enterprises in the United States and internationally.
- Market cap at $202.37M, most recent closing price at $5.10
- Total debt/equity: 0.0
- Net institutional purchases in the current quarter at 2.8M shares, which represents about 11.01% of the company's float of 25.44M shares. The top holders of the stock are Karamaan Group LLC (2.13%) and Royce & Associates LLC (2.04%).
- Diluted TTM earnings per share at 0.33, and a MRQ book value per share value at 5.27, implies a Graham Number fair value = sqrt(22.5*0.33*5.27) = $6.26. Based on the stock's price at $5.07, this implies a potential upside of 23.38% from current levels.
TNAV has returned -2.67% since 4/30/13, and is falling slightly behind industry peers like Trimble Navigation Limited (NASDAQ:TRMB), Garmin Ltd. (NASDAQ:GRMN) and Sensata Technologies Holding NV (NYSE:ST), which returned -1.25%, 1.54% and 5.08%, respectively, during the same period.
The company's earnings growth looks weak, with EPS growing by -21.90% over the last year. This is considerably weaker than competitors like ST (EPS growth over the last year at 2634.93%) and TRMB (EPS growth over the last year at 24.51%).
This week TheStreet reported that TNAV had become oversold, reaching a Relative Strength Index of 29.8 on 5/29/2013, which could be a good sign that the company has become a good buying opportunity.
3. BankUnited, Inc. (NYSE:BKU): Operates as the holding company for BankUnited that provides various banking products and services to consumers, and commercial and middle-market businesses.
- Market cap at $2.49B, most recent closing price at $24.79
- Total debt/equity: 0.0
- Net institutional purchases in the current quarter at 4.4M shares, which represents about 6.72% of the company's float of 65.45M shares. The top holders of the stock are Wellington Management Company, LLP (9.68%) and Carlyle Group LP (8.72%).
- Diluted TTM earnings per share at 2.03, and a MRQ book value per share value at 18.36, implies a Graham Number fair value = sqrt(22.5*2.03*18.36) = $28.96. Based on the stock's price at $24.9, this implies a potential upside of 16.3% from current levels.
BKU has returned -2.21% since 4/30/13, and has been underperforming in its industry. The stock is falling behind companies like BB&T Corporation (NYSE:BBT) and First Citizens Bancshares Inc. (NASDAQ:FCNCA), which returned 9.53% and 6.28% during the same time period.
However, the company's earnings growth looks strong, with EPS growing by 228.11% over the last year. This is considerably better than industry peers like 1st United Bancorp, Inc. (NASDAQ:FUBC) (EPS growth over the last year at 6.73%) and M&T Bank Corporation (EPS growth over the last year at 18.75%).
According to the company website, BKU manages over $12B in assets and has more than 95 branch locations across Florida. After falling apart during the recent financial crisis, the company was sold by the FDIC to John Kanas, a former private equity manager, and BKU now focuses on consumer and middle-market business banking needs.
*Institutional data, EPS and BVPS 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.
Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Emily Smykal, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.