Interesting in finding undervalued stocks with bullish indicators?
Below we list six stocks found to be undervalued according to the Graham number. To narrow our screen, we searched among the names for those experiencing significant levels of insider buying over the past six months. All stocks have market caps over $300M.
If you're unfamiliar with the implications of these criteria, have no fear, review them here:
Insider activity: Many analysts follow insider buying trends because, after all, insiders know more about their companies than anyone else. Their investment activity is closely monitored and can tell us a lot about where they feel the business is heading.
Insider buying is represented as a percentage of the share float. Companies experiencing insider buying over the past six months provide an indicator that insiders think the stock is undervalued at current levels. Inversely, insider selling serves as a negative indicator.
Graham Number: According to Benjamin Graham, a former mentor of Warren Buffett and the so-called "Godfather" of value investing, the Graham Number is the maximum price that a value investor should pay for a given stock. A stock whose share price is below the Graham Number is considered to be undervalued or of good value.
It is a calculation for the fair-value price of a stock based on its earnings per share (EPS) and book value per share (the value of the company's assets divided by the number of shares).
The Graham Number = Square Root of (22.5) x (TTM EPS) x (MRQ Book Value per Share).
We use the Graham Number to screen for potentially undervalued stocks
Note: The market does not price stocks based on the Graham Number, so share prices could increase significantly above the Graham Number, or fall far below it. This is also just one of many ways to value a stock
Without further ado, here are the six stocks listed with relevant information. Do you think these stocks are truly undervalued? Insiders seem to think so.
Use the list below as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
2. Center Bancorp
3. Skilled Healthcare Group
4. Saga Communications
5. Winthrop Realty Trust
List compiled by Eben Esterhuizen, CFA.
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 Eben Esterhuizen does not own any of the shares mentioned above. Insider data sourced from Yahoo! Finance, all other data sourced from Finviz.
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