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Feature Screens

5 Undervalued Companies to Research for the Defensive Investor – October 2014

image (10)There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five most undervalued companies reviewed by ModernGraham. Each company has been determined to be suitable for Defensive Investor according to the ModernGraham approach. This is a sample of one screen that is 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 to find out which companies have been selected in the past!

Deere & Co. (DE)

500px-John_Deere_logo.svgDeere & Company is suitable for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment.  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.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.68 in 2010 to an estimated $7.85 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 0.98% 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)
DE Chart

DE data by YCharts

CF Industries Holding Inc. (CF)

CfindustrieslogoCF Industries is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only initial concern is the lack of earnings stability over the last ten years.  The Enterprising Investor’s only concern is the high level of debt relative to the 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.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $7.11 in 2010 to an estimated $21.63 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.54% 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)
CF Chart

CF data by YCharts

Eastman Chemical Company (EMN)

200px-Eastman_Chemical_Company_logo.svgEastman 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)
EMN Chart

EMN data by YCharts

Aflac Inc. (AFL)

500px-Aflac.svgAflac Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  In fact, the company satisfies 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 it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $3.66 in 2010 to an estimated $5.95 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 0.89% 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 here)
AFL Chart

AFL data by YCharts

Wells Fargo & Co. (WFC)

500px-Wells_Fargo_Bank.svgWells Fargo qualifies for either Defensive Investors or for Enterprising Investors.  In fact, 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 it to other opportunities through a review of ModernGraham’s valuation of Fifth Third Bancorp (FITB) and ModernGraham’s valuation of JP Morgan Chase (JPM).  From a valuation perspective, the company appears significantly undervalued after growing its EPSmg (normalized earnings) from $1.83 in 2010 to an estimated $3.56 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 3.00% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the market price.  (See the full valuation)
WFC Chart

WFC data by YCharts

Disclaimer:  The author held a 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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