Five Large-Cap Stocks Screen as Deeply Undervalued by Graham Formula

Five large-cap U.S. stocks are trading at significant discounts to their intrinsic value as calculated by Benjamin Graham's classic formula, with potential upsides ranging from 99% to over 215%, according to an analysis by Investing.com. The screen identified companies that meet the influential investor's strict criteria, including a price-to-earnings (P/E) ratio of 15 or less and a price-to-book (P/B) ratio of 1.5 or less.

Graham's Value Screen

The analysis highlights a diverse group of companies from the cable, insurance, and energy sectors that are currently priced at less than half of their Graham-calculated value. The largest potential discount was found in Charter Communications, which the formula suggests has an upside of over 215%.

Key findings from the screen include:

• Charter Communications (CHTR): Trading at a P/E of 3.5x and P/B of 1.1x, with a calculated intrinsic value implying a +215.9% upside.
• Lincoln National (LNC): Trading at a P/E of 3.9x and P/B of 0.9x, with a calculated upside of +188.3%. It also offers a 3.9% dividend yield.
• White Mountains Insurance (WTM): Trading at a P/E of 5.0x and P/B of 1.0x, with a calculated upside of +121.9%.
• RenaissanceRe (RNR): Trading at a P/E of 5.2x and P/B of 1.2x, with a calculated upside of +113.3%.
• CNX Resources (CNX): Trading at a P/E of 5.6x and P/B of 1.1x, with a calculated upside of +98.9%.

Sector-Specific Headwinds

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The deep discounts reflect significant market skepticism about the future earnings potential of these companies. Charter Communications, for example, faces secular headwinds from cord-cutting in the cable and broadband industry, which has compressed its valuation despite its robust cash flows.

The insurers on the list—Lincoln National, RenaissanceRe, and White Mountains—are often subject to a structural market discount. The inherent volatility in their earnings, which can be heavily impacted by catastrophe losses or changes in reserve estimates, leads investors to demand a wider margin of safety. Similarly, the valuation of natural gas producer CNX Resources is suppressed by the cyclicality of energy prices.

The Value Investor's Dilemma

It is important for investors to note the limitations of the Graham formula, which heavily weights current earnings per share (EPS). The model can overstate intrinsic value for cyclical or structurally challenged businesses if current earnings are not representative of their long-term, normalized potential.

The wide margin of safety identified in these stocks exists precisely because the market doubts the quality or sustainability of their recent earnings. This creates the central tension for value investors: determining whether the market has overly punished these stocks or has correctly identified fundamental risks to their future profitability.