Feature Screens

5 Undervalued Dow Companies to Research – June 2014

image (9)There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five most undervalued Dow Components reviewed by ModernGraham which are suitable for the Defensive Investor according to the ModernGraham approach. This is a sample of the types of screens included in ModernGraham Stocks & Screens, which is available for premium subscribers.  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. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

 

Be sure to check out the history of this screen, including the companies which have been chosen in the past.  This month, Cisco Systems (CSCO) has dropped off the list and American Express (AXP) added.

JP Morgan Chase (JPM)

500px-J_P_Morgan_Chase_Logo_2008_1.svg

JP Morgan Chase is suitable for either Defensive Investors or Enterprising Investors.  The company passes all of the requirements of both investor types, which is a rare accomplishment.  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 through the ModernGraham Valuation Index.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.92 in 2010 to an estimated $4.75 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of only 1.49% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price at this time. (See the full valuation)
JPM Chart

JPM data by YCharts

Intel Corp (INTC)

500px-Intel-logo.svgIntel Corp is an outstanding company for both Defensive Investors and Enterprising Investors to consider.  The company passes all of the requirements of both investor types.  As a result, all 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 side of things, the company appears undervalued after growing its EPSmg (normalized earnings) from $1.27 in 2010 to an estimated $1.96 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of only 2.33% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price. (See the full valuation)
INTC Chart

INTC data by YCharts

UnitedHealth Group Inc. (UNH)

UnitedHealth_Group_logoUnitedHealth Group is suitable for both Defensive Investors and Enterprising Investors.  The company passes all of the Defensive Investor’s requirements except the current ratio, and even though the Enterprising Investor is concerned with the high level of debt relative to current assets, the company qualifies for both investor types because it is suitable for Defensive Investors.  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 its competitors.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.36 in 2010 to an estimated $5.24 in 2014.  This level of demonstrated growth exceeds the market’s implied estimate of 3.11% earnings growth and leads the ModernGraham to calculate an estimate of intrinsic value that is well above the price. (See the full valuation)
UNH Chart

UNH data by YCharts

Chevron Corporation (CVX)

500px-Chevron_Logo.svgChevron Corporation qualifies for both Defensive Investors and Enterprising Investors.  The Defensive Investor is only concerned with the low current ratio, and the company by default also qualifies for 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 its competitors through a review of ModernGraham’s valuation of Exxon Mobil (XOM) and ModernGraham’s valuation of Conoco Philips (COP).  From a valuation side of things, the company appears undervalued after growing its EPSmg (normalized earnings) from $8.58 in 2010 to an estimated $11.17 in 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.27% 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)
CVX Chart

CVX data by YCharts

American Express Company (AXP)

200px-American_Express_logo.svgAmerican Express is a great company for Enterprising Investors to look at in more detail, but it does not quite qualify for the Defensive Investor because its PB ratio is too high.  That said, 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 comparing it to competitors through a review of ModernGraham’s valuation of Visa (V) and ModernGraham’s valuation of Capital One Financial (COF).  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.68 in 2010 to an estimated $4.63 for 2014.  This solid level of demonstrated growth surpasses the market’s implied estimate of 5.11% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.  (See the full valuation)
AXP Chart

AXP data by YCharts

What do you think?  Are these companies a good value for Defensive 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 did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing those holdings within the next 72 hours.

Company logos were taken from Wikipedia; ModernGraham has no affiliation with any of the companies mentioned.

 

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