4 DJIA Stocks Undervalued By The Graham Number

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Includes: AA, CVX, HPQ, TRV
by: Kapitall

Do you consider yourself a value investor? If you like to invest in stocks that you believe are undervalued, your answer is probably yes.

With this idea in mind, we ran a screen on the 30 Dow Jones Industrial Average stocks for those that appear undervalued relative to their Graham Number.

The Graham Number was created by the "godfather of value investing" Benjamin Graham as a calculation for 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 are being undervalued? Use this list as a starting point for your own analysis.

1. Alcoa, Inc. (NYSE:AA): Engages in the production and management of aluminum, fabricated aluminum, and alumina. Diluted TTM earnings per share at 0.55, and a MRQ book value per share value at 12.96, implies a Graham Number fair value = sqrt(22.5*0.55*12.96) = $12.66. Based on the stock's price at $10.37, this implies a potential upside of 22.12% from current levels.

2. Chevron Corp. (NYSE:CVX): Engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. Diluted TTM earnings per share at 13.44, and a MRQ book value per share value at 60.7, implies a Graham Number fair value = sqrt(22.5*13.44*60.7) = $135.48. Based on the stock's price at $105.96, this implies a potential upside of 27.86% from current levels.

3. Hewlett-Packard Company (NYSE:HPQ): Offers various products, technologies, software, solutions, and services to individual consumers and small- and medium-sized businesses (SMBs), as well as to the government, health, and education sectors worldwide. Diluted TTM earnings per share at 3.32, and a MRQ book value per share value at 19.41, implies a Graham Number fair value = sqrt(22.5*3.32*19.41) = $38.08. Based on the stock's price at $28.63, this implies a potential upside of 33.% from current levels.

4. The Travelers Companies, Inc. (NYSE: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. 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 $59.27, this implies a potential upside of 15.97% 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.