Sometimes stocks that are priced low can produce a lot of movement because any change in price represents a bigger percentage change. Because of the inherent risk of the price movements, traders like to have some sort of affirmation that the stock is in a bullish trend and/or undervalued.
Investors have many ways to value a stock, but one of the stricter ways is the Graham method. Benjamin Graham is considered the "Godfather" of value investing and was a former mentor of Warren Buffett. He developed his method from earnings per share (EPS) and book value per share, and it is his calculation for the maximum fair-value price of a stock. Stocks trading significantly below their Graham Number are considered to be potentially undervalued.
The Graham Number = Square Root of (22.5) x (TTM EPS) x (MRQ Book Value per Share).
Business section: Investing ideas
To make the list below, we started with stocks between $1-$10 that have posted positive gains over the past quarter. Then we checked those names against their Graham fair-value, or Graham Number.
The names below are still considered undervalued despite being up this quarter. Do you think they have more room to run?
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
1. ARMOUR Residential REIT
2. Monster Worldwide
3. Astoria Financial
4. Iridium Communications
6. Wilshire Bancorp
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 Danny Guttridge does not own any of the shares mentioned above. EPS and BVPS data sourced from Yahoo! Finance, all other data sourced from Finviz.
The Motley Fool owns shares of Iridium Communications. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.