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5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – February 2015

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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 companies has been determined to be suitable for the Defensive Investor according to the ModernGraham approach. 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.

Be sure to check out the history of this screen to see which companies have been selected in the past.

PVH Corporation (PVH)

186px-Pvh-corp-logoPVH Corp qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only initial concern is the high PEmg ratio, while the Enterprising Investor is only concerned by 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 very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.05 in 2011 to an estimated $4.62 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 9.44% 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)

National Oilwell Varco Inc. (NOV)

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National Oilwell Varco passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern at this initial stage is the short dividend history while the Enterprising Investor has no issues. As a result, value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $3.88 in 2010 to $5.48 for 2014. This is a very strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of only 1.85% over the next 7-10 years. In fact, the historical growth is around 8.25% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, and therefore returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.  (See the full valuation on Seeking Alpha)

Unum Group (UNM)

Unum-logoUnum Group is suitable for both the Defensive Investor and the Enterprising Investor, having passed all of the requirements of both investor types.  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 $2.25 in 2010 to an estimated $2.96 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.42% 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)

JP Morgan Chase (JPM)

500px-J_P_Morgan_Chase_Logo_2008_1.svgJPMorgan Chase performs extremely well in the initial stages of the analysis, passing all of the requirements of both the Enterprising Investor and the Defensive Investor. Any value investor following the ModernGraham approach based on Benjamin Graham’s teachings should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

To determine an estimate of the intrinsic value, one must consider the company’s earnings. Here, the company has grown its EPSmg (normalized earnings) from $3.05 in 2010 to an estimated $4.83 for 2014. This is a strong level of growth, approximately 11.66% each year. Even adjusting for a margin of safety to assume the company will not do as well in the future, a conservative growth estimate may be around 8.74%, which is well above the market’s implied forecast of only 2.01% earnings growth over the next 7-10 years. The company would have to see a significant slowdown in growth in order to be valued at the market’s current price. As a result, the ModernGraham valuation model returns an estimate of intrinsic value well above the price, supporting a clear conclusion that the company is significantly undervalued. All value investors are therefore encouraged to proceed with further research to determine whether JPMorgan Chase is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

Joy Global Inc. (JOY)

2012_JGI_logo_wikipediaJoy Global Inc. is suitable for both the Defensive Investor and the Enterprising Investor.  In fact, the company passes all of the requirements of both investor types, which is a rare accomplishment.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.89 in 2010 to $4.91 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 0.17% 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)

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.

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