Investing 101: 10 Mega-Cap Stocks Most Undervalued By Graham

Are you someone who likes to follow the investing trends of sophisticated investors? Do you believe larger companies offer the most sustainability? If so, you may enjoy the following list of potentially undervalued mega-cap stocks.

Graham Number
To start, we applied the wisdom of the respected investor Benjamin Graham. Graham was a former mentor to Warren Buffett, whom he taught at Columbia Business School and is considered the "godfather of value investing."

Graham created an equation to help search for potentially undervalued stocks, and identifies what is known as the "Graham Number," or the maximum fair value for a stock. Any stock trading at a significant discount to this number is considered by the equation to be 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). This equation assumes that a stock is overvalued if P/E is over 15 or P/BV is over 1.5.

The list
We applied the graham equation to the largest 200 companies by market cap and took only the names deemed most undervalued.

Without further ado, here are the top 10 stocks, sorted by potential upside. Do you think these stocks are truly undervalued?

Use the list below as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

List compiled by Alexander Crawford:

1. ConocoPhillips (NYSE: COP  ) : Operates as an integrated energy company worldwide. Market cap of $90.98B. TTM diluted EPS at $7.80 and MRQ BVPS at $49.56 gives a Graham Number of $93.26, which implies a potential upside of 36.11% from the current price at $68.52.

2. Chevron (NYSE: CVX  ) : Engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. Market cap of $200.20B. TTM diluted EPS at $13.50 and MRQ BVPS at $60.70 gives a Graham Number of $135.79, which implies a potential upside of 35.07% from the current price at $100.53.

3. Statoil (NYSE: STO  ) : Engages in the exploration, production, transportation, refining, and marketing of petroleum and petroleum-derived products. Market cap of $77.74B. TTM diluted EPS at $3.38 and MRQ BVPS at $13.68 gives a Graham Number of $32.25, which implies a potential upside of 32.30% from the current price at $24.38.

4. Suncor Energy (NYSE: SU  ) : Operates as an integrated energy company. Market cap of $42.57B. TTM diluted EPS at $2.37 and MRQ BVPS at $23.32 gives a Graham Number of $35.26, which implies a potential upside of 30.41% from the current price at $27.04.

5. Westpac Banking (NYSE: WBK  ) : Provides a range of banking and financial services. Market cap of $61.89B. TTM diluted EPS at $11.25 and MRQ BVPS at $69.71 gives a Graham Number of $132.84, which implies a potential upside of 30.15% from the current price at $102.06.

6. Vodafone Group (NYSE: VOD  ) : Provides mobile communications in Europe, Africa, the Asia Pacific, the Middle East, and the United States. Market cap of $142.32B. TTM diluted EPS at $2.13 and MRQ BVPS at $25.57 gives a Graham Number of $35.01, which implies a potential upside of 29.46% from the current price at $27.04.

7. PetroChina Co. (NYSE: PTR  ) : Produces and distributes oil and gas in the People's Republic of China. Market cap of $215.54B. TTM diluted EPS at $12.10 and MRQ BVPS at $82.20 gives a Graham Number of $149.60, which implies a potential upside of 27.02% from the current price at $117.77.

8. Carnival (NYSE: CCL  ) : Operates as a cruise and vacation company. Market cap of $25.55B. TTM diluted EPS at $2.45 and MRQ BVPS at $31.65 gives a Graham Number of $41.77, which implies a potential upside of 26.88% from the current price at $32.92.

9. Carnival (NYSE: CUK  ) : Provides cruise vacation services. Market cap of $25.72B. TTM diluted EPS at $2.45 and MRQ BVPS at $31.65 gives a Graham Number of $41.77, which implies a potential upside of 26.04% from the current price at $33.14.

10. Time Warner (NYSE: TWX  ) : Operates as a media and entertainment company in the United States and internationally. Market cap of $33.84B. TTM diluted EPS at $2.63 and MRQ BVPS at $30.67 gives a Graham Number of $42.60, which implies a potential upside of 26.00% from the current price at $33.81.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Rebecca Lipman and Alexander Crawford do not own any of the shares mentioned above. BVPS, EPS, and insider data sourced from Yahoo! Finance, all other data sourced from Finviz.

Motley Fool newsletter services have recommended buying shares of Statoil A, Chevron, and Vodafone Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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