Feature Value Investing Weekly

The 12 Best Stocks For Value Investors This Week – 5/30/15

The EliteWe evaluated 28 different companies this week to determine whether they are suitable for Defensive Investors, those unwilling to do substantial research, or Enterprising Investors, those who are willing to do such research. We also put each company through the ModernGraham valuation model based on Benjamin Graham’s value investing formulas in order to determine an intrinsic value for each. Out of those 28 companies, only 12 were found to be undervalued and suitable for either Defensive or Enterprising Investors.  Here’s a summary of those 12 best stocks for value investors this week, considered “The Elite.” To see a listing and screenings of all the valuations, be sure to sign up to be a premium subscriber!

Bed, Bath & Beyond (BBBY)

500px-Bedbath&beyond.svgBed, Bath & Beyond performs well in the ModernGraham model and is suitable for Enterprising Investors. The Defensive Investor is concerned with the lack of dividends and the high PB ratio, while the Enterprising Investor is only concerned by the lack of dividends. As a result, Enterprising 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $2.38 in 2011 to $4.63 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 3.44% annual earnings growth over the next 7-10 years. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.  (See the full valuation)

CA Inc. (CA)

500px-CA_Technologies_brand.svgCA Inc. is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned by the low current ratio, and the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company satisfies the more conservative Defensive Investor.  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 $1.33 in 2011 to $1.95 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 3.65% annual earnings growth over the next 7-10 years 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)

Capital One Financial (COF)

500px-Capital_One_Financial_logo.svgCapital One qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings stability over the last ten years, while 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 $4.25 in 2011 to an estimated $7.14 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 1.65% 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)

Ford Motor Company (F)

500px-Ford_Motor_Company_Logo.svgFord Motor Company performs well in the ModernGraham model and is suitable for Enterprising Investors. The Defensive Investor is concerned with the inconsistent dividend record and the lack of earnings stability over the last ten years, while the Enterprising Investor has no initial concerns. As a result, Enterprising 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $1.30 in 2011 to an estimated $1.55 for 2015. Even though this is not a very high level of growth, it is well above the market’s implied estimate of only 0.69% annual earnings growth over the next 7-10 years. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.  (See the full valuation)

International Paper Co. (IP)

500px-International_Paper.svgInternational Paper Co. is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings stability over the last ten years, and the high PEmg ratio.  The Enterprising Investor is only concerned with the level of debt relative to the net current assets.  As a result, all Enterprising 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 $1.49 in 2011 to an estimated $2.66 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 5.64% annual earnings growth over the next 7-10 years 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)

KeyCorp (KEY)

KeyBankKeyCorp qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings stability over the last ten years, while 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 a loss of $0.35 in 2011 to an estimated gain of $0.98 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 3.34% 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)

Macerich Company (MAC)

500px-Macerich.svgMacerich Company is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned by the low current ratio, and the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company satisfies the more conservative Defensive Investor.  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 $1.09 in 2011 to an estimated $5.06 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 3.98% annual earnings growth over the next 7-10 years 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)

People’s United Financial Inc. (PBCT)

PeoplesUnitedBankPeople’s United Financial Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  In fact, the company passes all of the requirements of both investor types, indicating it is in a very strong financial position.  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 and comparing it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $0.40 in 2011 to an estimated $0.78 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 5.62% 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)

Ross Stores Inc. (ROST)

220px-Ross_Stores_Inc._(logo)Ross Stores Inc. is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, and the high PEmg and PB ratios, while the Enterprising Investor is only initially concerned by the low current ratio.  As a result, Enterprising 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 $1.66 in 2011 to $3.75 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 8.69% 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)

TE Connectivity (TEL)

LogoTEConnectivityTE Connectivity Limited is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, the insufficient earnings stability over the last ten years, the short dividend history and the high PEmg ratio, while the Enterprising Investor has no initial concerns.  As a result, Enterprising 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 $0.57 in 2011 to an estimated $3.75 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 5.07% 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)

Textron Inc. (TXT)

220px-Textron_logoTextron Inc. is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios, while the Enterprising Investor is only initially concerned by the 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 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 $0.81 in 2011 to an estimated $2.05 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 7.05% 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)

Wells Fargo (WFC)

500px-Wells_Fargo_Bank.svgWells Fargo passes the initial requirements of both the Defensive Investor and the Enterprising Investor. In fact, the company passes every requirement of both investor types, which is a rare accomplishment indicative of the company’s strong financial position. As a result, all 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, it has grown its EPSmg (normalized earnings) from $2.13 in 2011 to an estimated $3.79 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of 3.14% over the next 7-10 years. Therefore, the ModernGraham valuation model returns an estimate of intrinsic value well above the price.  (See the full valuation)

Disclaimer: The author held a long position in Ford Motor Company (F) 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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