9 Mega-Cap Stocks Undervalued By The Graham Number

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Includes: BLK, CVS, CVX, DUK, DWDP, GE, OXY, T, TWX
by: Kapitall

Value investors search for stocks that appear underpriced relative to their intrinsic value, which is based off of company metrics such as earnings or book value. One helpful way to find undervalued opportunities is from the “godfather of value investing” himself, Benjamin Graham.

Graham created an equation to calculate the maximum fair value for a stock, referred to as the Graham Number. Any stock trading at a significant discount to this number would appear undervalued.

The Graham Number only requires two data points: current earnings per share and current book value per share. 
The Graham Number = Square Root of (22.5) x (TTM Earnings per Share) x (MRQ Book Value per Share).

We used the Graham Number to screen for potentially undervalued stocks among the 200 largest companies by market cap.

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-off point for your own analysis.

List sorted by potential upside implied by Graham number.

1. AT&T, Inc. (NYSE:T):
Provides telecommunication services to consumers, businesses, and other service providers worldwide. Market cap of $166.88B. TTM Diluted EPS at $3.44, MRQ Book Value Per Share at $19.21, Graham number at $38.56 (vs. current price at $28.52, implies a potential upside of 35.20%). The stock has gained 3.26% over the last year.

2. Time Warner Inc. (NYSE:TWX):
Operates as a media and entertainment company in the United States and internationally. Market cap of $30.26B. TTM Diluted EPS at $2.32, MRQ Book Value Per Share at $30.15, Graham number at $39.67 (vs. current price at $29.97, implies a potential upside of 32.37%). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 3.25%, current ratio at 1.65, and quick ratio at 1.4. It's been a rough couple of days for the stock, losing 5.82% over the last week.

3. Chevron Corp. (NYSE:CVX):
Engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. Market cap of $180.03B. TTM Diluted EPS at $11.45, MRQ Book Value Per Share at $57.74, Graham number at $121.96 (vs. current price at $92.59, implies a potential upside of 31.73%). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 3.47%, current ratio at 1.53, and quick ratio at 1.33. The stock has gained 14.1% over the last year.

4. BlackRock, Inc. (NYSE:BLK): Provides its services to institutional, intermediary, and individual investors. Market cap of $25.39B. TTM Diluted EPS at $12.27, MRQ Book Value Per Share at $136.38, Graham number at $194.04 (vs. current price at $148.01, implies a potential upside of 31.10%). The stock is currently stuck in a downtrend, trading 7.09% below its SMA20, 11.11% below its SMA50, and 22.45% below its SMA200. It's been a rough couple of days for the stock, losing 5.71% over the last week.

5. The Dow Chemical Company (DOW):
Manufactures and supplies products used as raw materials in the production of customer products and services worldwide. Market cap of $25.41B. TTM Diluted EPS at $2.18, MRQ Book Value Per Share at $17.09, Graham number at $28.95 (vs. current price at $22.46, implies a potential upside of 28.91%). This is a risky stock that is significantly more volatile than the overall market (beta = 2.31). It's been a rough couple of days for the stock, losing 11.37% over the last week.

6. General Electric Co. (NYSE:GE):
Operates as a technology, service, and finance company worldwide. Market cap of $155.72B. TTM Diluted EPS at $1.27, MRQ Book Value Per Share at $12.08, Graham number at $18.58 (vs. current price at $15.22, implies a potential upside of 22.07%). Might be undervalued at current levels, with a PEG ratio at 0.81, and P/FCF ratio at 9.88. It's been a rough couple of days for the stock, losing 5.65% over the last week.

7. Duke Energy Corporation (NYSE:DUK): Operates as an energy company in the Americas. Market cap of $26.24B. TTM Diluted EPS at $1.54, MRQ Book Value Per Share at $16.95, Graham number at $24.23 (vs. current price at $19.99, implies a potential upside of 21.23%). The stock has gained 17.18% over the last year.

8. CVS Caremark Corporation (NYSE:CVS):
Operates as a pharmacy services company in the United States. Market cap of $44.34B. TTM Diluted EPS at $2.46, MRQ Book Value Per Share at $28.41, Graham number at $39.65 (vs. current price at $33.59, implies a potential upside of 18.06%). The stock is currently stuck in a downtrend, trading 7.29% below its SMA20, 5.89% below its SMA50, and 6.61% below its SMA200. The stock has gained 6.32% over the last year.

9. Occidental Petroleum Corporation (NYSE:OXY):
Operates as an oil and gas exploration and production company primarily in the United States. Market cap of $55.74B. TTM Diluted EPS at $7.08, MRQ Book Value Per Share at $43.26, Graham number at $83.01 (vs. current price at $71.50, implies a potential upside of 16.10%). It's been a rough couple of days for the stock, losing 10.92% over the last week.

*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.