Feature Screens

5 Undervalued Companies with a High Beta – September 2014

20140530-054905-20945379.jpgThere 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 with the highest beta.  A company’s beta indicates the correlation at which its price moves in relation to the market.  A beta greater than 1 indicates a company is more volatile than the market.  Each company has been determined to be suitable for either the Defensive Investor or the Enterprising 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.

With a high beta, Mr. Market may turn these companies around very quickly, so be sure to check them out in depth!

Freeport-McMoRan (FCX)

Freeport-McMoRan satisfies the Enterprising Investor but not the Defensive Investor and has a beta of 2.2.  The Defensive Investor has concerns with the low current ratio, as well as the lack of earnings stability over the last ten years and the lack of stable dividend payments over that time frame.  The Enterprising Investor’s only concern is with the high level of debt relative to the net current assets.  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 it to other opportunities.  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $0.01 in 2010 to an estimated $2.95 for 2014.  This level of demonstrated growth more than supports the market’s implied estimate of 1.43% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price. (See the full valuation here)FCX Chart

FCX data by YCharts

National Oilwell Varco (NOV)

National Oilwell Varco has a beta of 1.9 and is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is with the short dividend history and the company passes all of the Enterprising Investor’s requirements.  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 it to other opportunities through a review of ModernGraham’s valuation of Baker Hughes Inc. (BHI) and ModernGraham’s valuation of Schlumberger Ltd (SLB).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.88 in 2010 to an estimated $5.46 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 3.11% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (See the full valuation here)
NOV Chart

NOV data by YCharts

Lincoln National Corp (LNC)

Lincoln National is suitable for Enterprising Investor but not for Defensive Investors.  The Defensive Investor is concerned by the insufficient earnings stability or growth over the last ten years, though the company passes all of the Enterprising Investor’s requirements.  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 it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $1.42 in 2010 to an estimated $4.18 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.94% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)
LNC Chart

LNC data by YCharts

Eastman Chemical Co. (EMN)

Eastman Chemical Company qualifies for either the Defensive Investor or the Enterprising Investor. In fact, the only requirement of either investor type which the company does not pass is the Enterprising Investor’s requirement of low debt to net current assets. As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of The Dow Chemical Company (DOW). As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.06 in 2010 to an estimated $5.63 for 2014. This strong level of demonstrated growth outpaces the market’s implied estimate of 2.84% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the price.  (See the full valuation here)
EMN Chart

EMN data by YCharts

Agilent Technologies (A)

Agilent Technologies qualifies for the Enterprising Investor but not the Defensive Investor, and has a beta of 1.7. The Defensive Investor has concerns with the lack of earnings stability over the last ten years, the short dividend record, and the high PEmg and PB ratios, but the company passes all of the Enterprising Investor’s requirements. 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 it to other opportunities. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.42 in 2010 to an estimated $2.73 in 2014. This level of demonstrated growth supports the market’s implied estimate of 6.37% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (See the full valuation here)A Chart

A data by YCharts

What do you think?  Are these companies a good value for Defensive Investors and 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 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.

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