Feature Screens

5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – May 2014

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There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five undervalued companies reviewed by ModernGraham trading closest to their 52 week low. Each of these company has been determined to be suitable for the Defensive Investor according to the ModernGraham approach. This is a sample of one screen that is included in ModernGraham Stocks & Screens.  Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Defensive Investors may also be interested in reviewing 5 Undervalued Companies for the Defensive Investor – April 2014 while also conducting further research into the following companies.

This is the first month we have featured this screen.

Mattel, Inc. (MAT)

200px-Mattel-brand.svgMattel Inc. is suitable for either the Defensive Investor or the Enterprising Investor and is currently trading at 112.6% of its 52 week low.  For the Defensive Investor, the only concern is the high PB ratio, while the company passes all of the requirements of the Enterprising Investor.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company including comparing the company to ModernGraham’s valuation of Hasbro Inc. (HAS) and ModernGraham’s valuation of The Walt Disney Company (DIS).  From a valuation side of things, Hasbro appears significantly undervalued after growing its EPSmg (normalized earnings) from $1.35 in 2009 to $2.25 for 2013.  This demonstrated level of growth is greater than the market’s implied estimate of 4.50% and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price. (See the full valuation)

MAT Chart

MAT data by YCharts

Cisco Systems Inc. (CSCO)

500px-Cisco_logo.svgCisco Systems Inc. is a great company for both the Defensive Investor and the Enterprising Investor and is currently trading at 113.8% of its 52 week low.  The Defensive Investor’s only concern is the short dividend history while the company passes all of the requirements of the Enterprising Investor.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and its competitors through a review of ModernGraham’s valuation of Microsoft (MSFT) and Hewlett-Packard (HPQ).  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.20 in 2010 to an estimated $1.63 for 2014.  This demonstrated level of growth surpasses the market’s implied estimate of only 2.81% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the price. (See the full valuation)
CSCO Chart

CSCO data by YCharts

Chevron Corporation (CVX)

500px-Chevron_Logo.svgChevron Corporation remains suitable for either the Defensive Investor or the Enterprising Investor and is currently trading at 114.3% of its 52 week low.  The Defensive Investor’s only issue with the company is the low current ratio, and the Enterprising Investor’s only issue is the high level of debt relative to the company’s current assets.  The company passes every other requirement of the two investor types.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a review of ModernGraham’s valuation of Exxon Mobil (XOM), and ModernGraham’s valuation of ConocoPhillips (COP).  From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $8.09 in 2009 to $11.58 for 2013.  This is a solid level of growth that outpaces the market’s implied estimate of earnings growth of 1.14%, and the ModernGraham valuation model accordingly returns an estimate of intrinsic value that surpasses the market price by more than our margin of safety.  Therefore, the company appears to be undervalued presently.  (See the full valuation here)
CVX Chart

CVX data by YCharts

CA, Inc. (CA)

500px-CA_Technologies_brand.svgCA Technologies looks very good in the ModernGraham approach based on Benjamin Graham’s methods for value investors and is currently trading at 117% of its 52 week low.  The company passes the requirements of the Defensive Investor, failing only the current ratio requirement, and as a result is suitable for both Defensive Investors and Enterprising Investors.  All Intelligent Investors should feel comfortable proceeding with further research to determine if CA Technologies would be right for their individual portfolios, and that research may include reviewing ModernGraham’s valuation of International Business Machines (IBM) and ModernGraham’s valuation of Oracle Corp (ORCL).  From a valuation perspective, CA Technologies also looks good, having grown its EPSmg (normalized earnings) from $0.76 in 2009 to an estimated $2.02 for 2013.  This is a solid level of growth that leads the ModernGraham valuation model to calculate an intrinsic value that surpasses the market’s current price.  Therefore, the company appears to be undervalued at the present time. (See the full valuation)

CA Chart

CA data by YCharts

Deere & Co. (DE)

500px-John_Deere_logo.svgDeere & Co. is an excellent company that is suitable for either the Defensive Investor or the Enterprising Investor and is currently trading at 117.3% of its 52 week low.  The only requirement for either investor type that the company does not meet is the PB ratio.  As a result, value investors following a ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company as well as other opportunities, such as through a review of ModernGraham’s valuation of Caterpillar Inc. (CAT).  From a valuation perspective, the company appears to be significantly undervalued, having grown its EPSmg (normalized earnings) from $3.68 in 2010 to an estimated $7.62 for 2014.  This demonstrated level of growth more than supports the market’s current implied estimate of 1.87% earnings growth, leading the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price. (See the full valuation)

DE Chart

DE data by YCharts

What do you think?  Are these companies a good value for Enterprising Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author held a long position in Deere & Co. (DE) but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing those holdings within the next 72 hours.

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