Screen for undervalued utilities with the Graham Number and a web-connected spreadsheet with live financial updates.
Utility companies are a core component of long-term investment planning. They’re stable, pay consistent dividends and sell a product that people will always want.
The Graham Number is a simple method of screening for undervalued stocks. Introduced by Benjamin Graham in his seminal book “The Intelligent Investor”, it’s equal to the square root of (22.5 x EPS x Book value per share). A stock is undervalued if the current market price is lower than its Graham Number
This web-connected spreadsheet has a list of electric utilities traded on the NYSE (and a few others). It downloads the market capitalization, last trade price, PE ratio, book value and EPS.
Some VBA then calculate the Graham Number for each utility. Undervalued utilities are highlighted in green, while those that are overvalued are highlighted in red. If you update the spreadsheet, you get the latest Graham Number.
Here’s a summary of the results, correct as of 21st February 2015.
Of course, the Graham Number shouldn’t be used in isolation. Benjamin Graham dictated that a company should meet several criteria before being valued by the Graham Number. These include uninterrupted earnings for the last ten years, a current ratio of over 2, consistent dividends for the last twenty years, and several others.