Feature Value Investing Weekly

The 8 Best Stocks For Value Investors This Week – 6/6/15

The EliteWe evaluated 20 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 20 companies, only 8 were found to be undervalued and suitable for either Defensive or Enterprising Investors.  Here’s a summary of those 8 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!

Eastman Chemical (EMN)

200px-Eastman_Chemical_Company_logo.svgEastman Chemical performs well in the ModernGraham model and is suitable for both Defensive Investors and Enterprising Investors. The Defensive Investor is concerned with the low current ratio, while the Enterprising Investor is similarly concerned with the level of debt relative to the net current assets. 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $2.88 in 2011 to an estimated $5.86 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 2.39% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 21% annually, 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, but still estimates a growth figure much higher than the market’s implied rate. 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)

Franklin Resources (BEN)

Franklin_Resources_LogoFranklin Resources performs very well in the ModernGraham model and is suitable for both Defensive and Enterprising Investors. In fact, the company passes all of the requirements 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $2.23 in 2011 to an estimated $3.49 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 3.03% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged over 11% annually, 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, but still estimates a growth figure much higher than the market’s implied rate. 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)

JPMorgan Chase (JPM)

500px-J_P_Morgan_Chase_Logo_2008_1.svgJPMorgan Chase 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 $3.48 in 2011 to an estimated $5.09 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of 2.24% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 9.25% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that JPMorgan Chase is significantly undervalued at the present time.  (See the full valuation)

KLA-Tencor Corporation (KLAC)

KLA_logolockup_RGBKLA-Tencor performs well in the ModernGraham model and is suitable for Enterprising Investors. The Defensive Investor is concerned with the lack of earnings stability over the last ten years along with the high PB ratio, 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 $1.70 in 2011 to an estimated $3.22 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 5.11% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 18% annually, 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, but still estimates a growth figure much higher than the market’s implied rate. 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)

Marsh & McLennan Companies (MMC)

Mmc-logoMarsh & McLennan Companies 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 or growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is only concerned by 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 $1.38 in 2011 to an estimated $2.56 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 7.05% 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 above the price.  (See the full valuation)

MeadWestvaco Corporation (MWV)

MeadWestvaco_logoMeadWestvaco is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, and the high PEmg and PB ratios.  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 $1.07 in 2011 to an estimated $2.16 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 7.57% 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)

Parker Hannifin Corporation (PH)

220px-Parker_Hannifin.svgParker Hannifin Corporation is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned by the high PB ratio.  The Enterprising Investor has no initial concerns.  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 $4.71 in 2011 to an estimated $7.00 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 4.29% 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 above the price.  (See the full valuation)

Seagate Technology (STX)

220px-Seagate_logo.svgSeagate Technology 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, inconsistent dividend record, and the high PB 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 $0.34 in 2011 to an estimated $5.01 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 1.26% 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)

Disclaimer: The author did not hold a position in any of the 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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