Stocks Trading Below Their Graham Number – January 2016

One popular approach to investing based on Benjamin Graham’s methods is to use the so-called “Graham Number.”  There are some important differences between the Graham Number and the Graham Formula, but using the Graham Number is definitely useful even if the investor only uses it as a screening tactic.

I’ve selected the best companies reviewed by ModernGraham which trade below their Graham Number.  The companies selected all are found suitable for the Defensive Investor and/or the Enterprising Investor, and have been valued as undervalued based on the ModernGraham valuation model.  Further, the overall screen found 51 companies meeting these criteria, and the full list can be found near the end of this article; however, to cut down on the length of the post, I’ve selected the ten which trade furthest below their Graham Number.

Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

These companies have demonstrated strong financial positions through passing the rigorous requirements of the ModernGraham Investor and show potential for capital growth based on their current price in relation to intrinsic value.  As such, these graham number stocks may be a great investment if they prove to be suitable for your portfolio after your own additional research.

It should be noted that I only recently began tracking Graham Number data, though I do have the data for over half of the ModernGraham universe.

Stocks Trading Below Their Graham Number – Citigroup Inc (C)

Citigroup Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years along with the inconsistent dividend history.  The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $6.47 in 2011 to an estimated gain of $3.81 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.66% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Stocks Trading Below Their Graham Number

Stocks Trading Below Their Graham Number – Lincoln National Corporation (LNC)

Lincoln National Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.80 in 2011 to an estimated $4.65 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.59% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Stocks Trading Below Their Graham Number

Stocks Trading Below Their Graham Number – Metlife Inc (MET)

MetLife Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.02 in 2011 to an estimated $4.20 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.45% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Stocks Trading Below Their Graham Number

Stocks Trading Below Their Graham Number – Capital One Financial Corp. (COF)

Capital One Financial Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, while the Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $4.25 in 2011 to an estimated $6.96 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.35% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Stocks Trading Below Their Graham Number

Stocks Trading Below Their Graham Number – Unum Group (UNM)

Unum Group qualifies for either the Enterprising Investor or the more conservative Defensive Investor.  In fact, the company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial condition.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.89 in 2011 to an estimated $2.72 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.47% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Stocks Trading Below Their Graham Number

Stocks Trading Below Their Graham Number – Legg Mason Inc (LM)

Legg Mason Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years along with the high PEmg ratio.  The Enterprising Investor is only initially concerned by the insufficient earnings stability over the last five years . As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $0.53 in 2012 to an estimated gain of $1.68 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.54%

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