Stocks

Best Stocks Below Their Graham Number – January 2017

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 30 companies meeting these criteria (out of the 660+ companies covered by ModernGraham), 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.

Seneca Foods Corp (SENEA)

Seneca Foods Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.73 in 2012 to an estimated $2.72 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.19% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Seneca Foods Corp revealed the company was trading below its Graham Number of $69.2. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 14.87, which was below the industry average of 24.74, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $16.89.  (See the full valuation)

Citigroup Inc (C)

Citigroup Inc is suitable 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, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-2.31 in 2012 to an estimated $4.1 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.16% 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)

C charts July 2016

Equity Residential (EQR)

Equity Residential qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.15 in 2012 to an estimated $5.79 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.39% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Equity Residential revealed the company was trading below its Graham Number of $90.07. The company pays a dividend of $2.11 per share, for a yield of 3.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.29, which was below the industry average of 34.03, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.85.  (See the full valuation)

Aspen Insurance Holdings Limited (AHL)

Aspen Insurance Holdings Limited is suitable 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 should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.19 in 2012 to an estimated $4.51 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.7% 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.

At the time of valuation, further research into Aspen Insurance Holdings Limited revealed the company was trading below its Graham Number of $82.44. The company pays a dividend of $0.86 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 11.91, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

Navient Corp (NAVI)

Navient Corp 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, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.63 in 2012 to an estimated $2.39 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.25% annual earnings loss 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.

At the time of valuation, further research into Navient Corp revealed the company was trading below its Graham Number of $21.98. The company pays a dividend of $0.64 per share, for a yield of 4.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 6.01, which was below the industry average of 19.87, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

NAVI charts August 2016

Metlife Inc (MET)

Metlife Inc 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. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.37 in 2012 to an estimated $4.04 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.75% 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.

At the time of valuation, further research into Metlife Inc revealed the company was trading below its Graham Number of $78.35. The company pays a dividend of $1.55 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.01, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

Capital One Financial Corp. (COF)

Capital One Financial Corp. 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. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.15 in 2012 to an estimated $7.13 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.05% 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)

COF charts July 2016

Lincoln National Corporation (LNC)

Lincoln National 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. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.04 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.12% 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)

LNC charts May 2016

CNO Financial Group Inc (CNO)

CNO Financial Group Inc is suitable 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, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.43 in 2012 to an estimated $1.1 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.55% 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.

At the time of valuation, further research into CNO Financial Group Inc revealed the company was trading below its Graham Number of $24.73. The company pays a dividend of $0.3 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 17.6, which was below the industry average of 18.78, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

American International Group Inc (AIG)

American International Group Inc is suitable 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, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-56.58 in 2012 to an estimated $3.64 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.83% 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.

At the time of valuation, further research into American International Group Inc revealed the company was trading below its Graham Number of $82.15. The company pays a dividend of $1.2 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 16.16, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

AIG charts August 2016

The Full List

To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

TickerName with LinkInvestor TypeLatest Valuation DateMG ValueRecent PricePrice as a percent of ValuePEmg RatioDiv. YieldGraham Number
AFLAFLAC IncorporatedD12/19/2016$70.352.33%$87.98
AHLAspen Insurance Holdings LimitedE12/13/2016$56.351.53%$82.44
AIGAmerican International Group IncE8/25/2016$64.891.85%$82.15
ARWArrow Electronics, Inc.E7/3/2016$72.880.00%$81.27
BACBank of America CorpE7/14/2016$22.950.87%$23.92
BAXBaxter International IncD1/28/2017$46.901.04%$56.96
BBBYBed Bath & Beyond Inc.D6/14/2016$40.000.00%$41.96
BKBank of New York Mellon CorpE1/7/2017$44.671.57%$48.91
CCitigroup IncE7/19/2016$56.610.35%$85.07
CNOCNO Financial Group IncE1/28/2017$19.261.56%$24.73
COFCapital One Financial Corp.E7/6/2016$88.811.80%$122.14
DHID.R. Horton, Inc.E1/11/2017$30.711.04%$32.39
EQREquity ResidentialD8/21/2016$60.703.48%$90.07
FOSLFossil Group IncE8/25/2016$24.900.00%$25.49
IVZInvesco Ltd.D7/24/2016$29.223.70%$30.20
LENLennar CorporationE11/19/2016$45.460.35%$49.83
LNCLincoln National CorporationE5/20/2016$68.491.61%$89.07
METMetlife IncE12/13/2016$54.902.82%$78.35
MNSTMonster Beverage CorporationE7/27/2016$42.430.00%$45.24
NAVINavient CorpE8/31/2016$15.114.24%$21.98
PHMPulteGroup, Inc.E7/18/2016$21.391.59%$21.69
PVHPVH CorpD1/13/2017$92.280.16%$95.06
RFRegions Financial CorpE6/27/2016$14.451.66%$14.93
SENEASeneca Foods CorpE12/22/2016$35.500.00%$69.20
STISunTrust Banks, Inc.E8/25/2016$57.271.68%$59.54
STWDStarwood Property Trust, Inc.E8/25/2016$22.298.61%$27.64
TRVTravelers Companies IncD12/1/2016$117.511.66%$134.38
TSE:CFPCanfor CorporationE12/7/2016$14.250.00%$14.31
TSE:CLSCelestica IncE1/11/2017$17.880.00%$20.71
TSE:CMCanadian Imperial Bank of CommerceE1/12/2017$112.254.23%$114.08

Disclaimer: 

The author held a long position in Invesco Ltd (IVZ) and Starwood Property Trust (STWD) but did not hold a position in any other company mentioned in this article at the time of publication and had no specific intention of changing that position within the next 72 hours; however, the author does intend to make some trades in the next 72 hours and may select a company from this list.  See my current holdings here.  This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions.  Please also read our full disclaimer.