4 Oil And Gas Stocks Undervalued To The Graham Number

Tickers in this article: CJES GLF HES TSO

Do you consider yourself a value investor? If so, we ran a screen looking for potentially undervalued oil and gas drilling stocks that may interest you. [More lists: 7 Rallying Services Stocks Undervalued By The Graham Number]

We screened a universe of oil and gas drilling stocks for those that appear undervalued relative to the Graham Number. The Graham Number is a measure of maximum fair value created by the "godfather of value investing," Benjamin Graham.

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It is based on a stock's EPS and book value per share (BVPS).

Graham Number = SQRT(22.5 x TTM EPS x MRQ BVPS)

The equation assumes that P/E should not be higher than 15, and P/BV should not be higher than 1.5. Stocks trading well below their Graham Number may be undervalued.

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oil stocks

Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.

1. C&J Energy Services, Inc. (CJES): Provides specialty equipment services for oil and natural gas exploration and production companies in the Texas, Louisiana, and Oklahoma regions of the United States. Market cap at $1.22B, most recent closing price at $23.03.  Diluted TTM earnings per share at 3.82, and a MRQ book value per share value at 10.61, implies a Graham Number fair value = sqrt(22.5*3.82*10.61) = $30.20. Based on the stock's price at $23.02, this implies a potential upside of 31.18% from current levels. 

2. Gulfmark Offshore, Inc. (GLF): Offers marine specialty services to offshore oil and natural gas drilling rigs and platforms. Market cap at $924.58M, most recent closing price at $34.32.  Diluted TTM earnings per share at 1.82, and a MRQ book value per share value at 39.4, implies a Graham Number fair value = sqrt(22.5*1.82*39.4) = $40.17. Based on the stock's price at $34.65, this implies a potential upside of 15.92% from current levels. 

3. Hess Corporation (HES):​ Operates as an integrated energy company. Market cap at $23.18B, most recent closing price at $67.88.  Diluted TTM earnings per share at 4.46, and a MRQ book value per share value at 60.67, implies a Graham Number fair value = sqrt(22.5*4.46*60.67) = $78.03. Based on the stock's price at $58.9, this implies a potential upside of 32.47% from current levels. 

4. Tesoro Corporation (TSO): Engages in refining and marketing petroleum products in the United States. Market cap at $6.75B, most recent closing price at $48.09.  Diluted TTM earnings per share at 4.19, and a MRQ book value per share value at 31.45, implies a Graham Number fair value = sqrt(22.5*4.19*31.45) = $54.45. Based on the stock's price at $44.58, this implies a potential upside of 22.14% from current levels. 

 

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