Feature Value Investing Weekly

15 Companies in the Spotlight This Week – 5/3/2014

image (7)We looked at 15 different companies this week.  Here’s a summary of the ModernGraham Valuations.  For more detailed analysis, click on the name of the company.  Yesterday we also screened all 275 companies in the database to find the 5 Undervalued Companies for the Defensive Investor Trading Closest to their 52 Week Low.  To see more screens of the valuations, be sure to sign up to be a premium subscriber of ModernGraham Stocks and Screens!

The Elite (Defensive or Enterprising and Undervalued)

  • 500px-Cisco_logo.svgCisco Systems Inc. (CSCO) – Cisco Systems Inc. is a great company for both the Defensive Investor and the Enterprising Investor.  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 2.84% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the price.

 

  • Discover_FinancialDiscover Financial Services (DFS) – Discover Financial Corp is a company that is intriguing to Enterprising Investors but does not quite qualify for the Defensive Investor.  The company has a short history as a publicly traded company and has yet to establish the dividend history the Defensive Investor requires.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing the company to other opportunities such as through a review of Capital One Financial  (COF) and Wells Fargo (WFC).  As for the valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.78 in 2010 to an estimated $4.51 for 2014.  This solid level of demonstrated growth more than supports the market’s implied estimate of 1.96% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • 500px-International_Paper.svgInternational Paper Co. (IP) – International Paper is suitable for Enterprising Investors but not Defensive Investors.  The company’s current ratio is too low and there has been insufficient earnings stability in the last ten years for the Defensive Investor.  The Enterprising Investor’s only concern is with the high level of debt relative to the current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of 5 Undervalued Companies for the Enterprising Investor and other screens found in MG Stocks & Screens.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.74 in 2009 to $2.35 for 2013.  This level of demonstrated growth outpaces the market’s implied estimate of 5.46% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • 200px-Mattel-brand.svgMattel Inc. (MAT) – Mattel Inc. is suitable for either the Defensive Investor or the Enterprising Investor.  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 4.31% and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • 500px-U.S._Bancorp_logo.svgUS Bancorp (USB) – US Bancorp is suitable for Enterprising Investors but not Defensive Investors, who are concerned about the lack of growth over the last ten years.  Enterprising Investors have a shorter horizon of analysis and are very intrigued by the company.  As a result, Enterprising Investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing the company to other opportunities such as through a review of JP Morgan Chase (JPM) and Bank of America Corp (BAC).  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.66 in 2010 to an estimated $2.82 for 2014.  This solid level of growth outpaces the market’s implied estimate of 2.88% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • 500px-Wells_Fargo_Bank.svgWells Fargo Corp (WFC) – Wells Fargo Corp is a company that is intriguing to all value investors as it passes all of the requirements of both the Defensive Investor and the Enterprising Investor.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing the company to other opportunities such as through a review of KeyCorp (KEY).  As for the valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.83 in 2010 to an estimated $3.48 for 2014.  This solid level of demonstrated growth more than supports the market’s implied estimate of 2.79% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

The Good (Defensive or Enterprising and Fairly Valued)

  • Fastenal Co. (FAST) – Fastenal Co. is suitable for Enterprising Investors but not for Defensive Investors, as the company’s PEmg and PB ratios are too high for the Defensive Investor.  The company passes all of the requirements of the Enterprising Investor.  As a result, Enterprising 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 5 Low PEmg Companies for the Defensive Investor while keeping in mind 7 Key Tips for Value Investing.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.80 in 2010 to an estimated $1.44 for 2014.  This demonstrated level of growth supports the market’s implied estimate of 12.89% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the market price.

 

  • Joy Global (JOY) – Joy Global is a rare company in that it has passed all of the requirements of both the Defensive Investor and the Enterprising Investor.  As such, it is suitable for either investor type, and value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.  From a valuation perspective, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.89 in 2010 to an estimated $4.90 for 2014.  This demonstrated level of growth is in line with the market’s implied estimate of 1.91% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the price.

 

  • Whole Foods Market (WFM) – Whole Foods Market is suitable for Enterprising Investors but not Defensive Investors.  For Defensive Investors, the company’s current ratio is too low, it does not have a strong enough dividend history, and its PEmg and PB ratios are too high.  The company passes all of the requirements of the Enterprising Investor.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company while also comparing it to other opportunities through a review of 5 Undervalued Companies for the Enterprising Investor.  From a valuation perspective, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.56 in 2010 to an estimated $1.35 for 2014.  This demonstrated level of growth supports the market’s implied estimate of 14.51% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the price.

The Mediocre (Defensive or Enterprising and Overvalued)

  • Corning Inc. (GLW) – Corning Inc. is not suitable for Defensive Investors but is suitable for Enterprising Investors.  The Defensive Investor is concerned with the lack of earnings stability or growth over the last ten years, and the short dividend history.  The Enterprising Investor’s only concern is the lack of earnings growth over the last five years.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of 3M Company (MMM) and Intel Corporation (INTC).  From a valuation side of things, the company appears to be overvalued after seeing a drop in EPSmg (normalized earnings) from $1.76 in 2009 to $1.49 for 2013.  This demonstrated lack of growth does not support the market’s implied estimate of 2.7% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market price.

The Bad (Speculative and Undervalued or Fairly Valued)

  • Caterpillar Inc. (CAT) – In the last several months, Mr. Market has considerably raised his price for Caterpillar, and it now has a higher PEmg and PB ratio than it did before.  This indicates the company presents a higher risk than previously and as a result, the company is no longer suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is also concerned with the low current ratio, and the Enterprising Investor is concerned with the level of debt relative to the current assets.  Value investors following the ModernGraham approach based on Benjamin Graham’s methods should keep an eye on the company, as if the price falls back down it may slip back into suitability for investment.  In the meantime, check out some other opportunities such as through ModernGraham’s valuation of Deere & Co. (DE).  From a valuation perspective, the company still appears undervalued after growing its EPSmg (normalized earnings) from $3.96 in 2010 to an estimated $6.53 for 2014.  This demonstrated level of growth outpaces the market’s implied estimate of 3.74% and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

 

  • Laboratory Corporation of America (LH) – Laboratory Corporation of America is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns regarding the company’s current ratio, lack of dividend payments, and high PB ratio.  The Enterprising Investor is concerned with the level of long-term debt and the lack of dividend payments.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should look into other opportunities through a review of ModernGraham’s valuation of Quest Diagnostics (DGX) and ModernGraham’s valuation of Psychemedics Corp (PMD).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.17 in 2009 to $5.74 for 2013.  This solid level of demonstrated growth supports the market’s implied estimate of 4.39% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the price.

The Ugly (Speculative and Overvalued)

Mr. Market

  • Health Care REIT (HCN) – Health Care REIT does not qualify for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the turn offs are the low current ratio, lack of earnings growth over the last ten years and the high PEmg ratio.  For the Enterprising Investor, the issue is the high level of debt relative to the current assets and the lack of earnings growth over the last five years.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore opportunities.  From a valuation perspective, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $1.27 in 2009 to $0.43 for 2013.  This demonstrated lack of growth does not support the market’s implied estimate of 68.39% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well below the price.

 

  • NextEra Energy (NEE) – NextEra Energy is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the concerns are the low current ratio and the high PEmg ratio.  The Enterprising Investor is concerned with the high level of debt relative to the company’s current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg from $3.65 in 2009 to only $4.37 in 2013.  This low level of demonstrated growth does not support the market’s implied estimate of 6.95% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market price.

 

  • Plum Creek Timber Co. (PCL) – Plum Creek Timber Co. is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the lack of sufficient earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the high level of debt relative to the current assets and the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach should explore other opportunities through a review of 5 Undervalued Companies for the Defensive Investor and 5 Undervalued Companies for the Enterprising Investor.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $1.52 in 2009 to $1.27 in 2013.  This demonstrated drop in earnings clearly does not support the market’s implied estimate of 13.01% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well below the market price.

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

Logos taken from either the company website or Wikipedia; this article is not affiliated with the companies in any manner.

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