Feature Screens

The 8 Best Stocks For Value Investors This Week – 6/27/15

We evaluated 16 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 16 companies, only 8 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors.  Here’s a summary of those 8 best stocks for value investors this week. To see a listing and screenings of all the valuations, be sure to sign up to be a premium subscriber!

The Elite

The following companies were found to be suitable for either the Defensive Investor or Enterprising Investor and undervalued:

CF Industries (CF)

CfindustrieslogoCF Industries passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only concerned by the low current ratio, while the Enterprising Investor’s only concern is 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 that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $2.46 in 2011 to an estimated $4.82 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of only 2.33% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 19.25% 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 CF Industries is significantly undervalued at the present time.  (See the full valuation)

Deere & Company (DE)

500px-John_Deere_logo.svgDeere & Company 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 $4.68 in 2011 to an estimated $7.30 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 2.11% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 11.25% 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)

Fossil Group Inc. (FOSL)

220px-Fossil_logo.svgFossil Group performs well in the ModernGraham model and is suitable for both Defensive and Enterprising Investors. Both investor types are only initially concerned by the lack of dividend payments. 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 $1.68 in 2011 to an estimated $6.01 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 1.68% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 16% 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)

Huntington Bancshares (HBAN)

Huntington_logoHuntington Bancshares passes the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor. Specifically, the Defensive Investor is concerned by the insufficient earnings growth and stability over the last ten years, while the Enterprising Investor has no initial concerns. As a result, all 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 that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from a loss of $1.02 in 2011 to an estimated gain of $0.73 for 2015. This level of demonstrated growth outpaces the market’s implied estimate for annual earnings growth of 3.69% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 34% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, it still returns an estimate of intrinsic value well above the current price, indicating that Huntington Bancshares is significantly undervalued at the present time.  (See the full valuation)

The Good

The following companies were found to be suitable for the Defensive Investor or Enterprising Investor and Fairly Valued:

Amphenol Corporation (APH)

220px-Amphenol_Logo.svgAmphenol Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned by the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns. Therefore, all Enterprising Investors should feel very comfortable proceeding with the next stage of the analysis, which is a determination of an estimate of intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $1.29 in 2011 to an estimated $2.12 for 2015. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 9.24% over the next 7-10 years.

The company’s recent earnings history shows an average annual growth in EPSmg of around 12.8%. The ModernGraham valuation model reduces such a rate to a more conservative figure, assuming some slowdown will occur, but still returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating Amphenol Corporation is fairly valued at the present time.  (See the full valuation)

B&G Foods Inc. (BGS)

bg-foods-logoB&G Foods is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned by the smaller company size, the short dividend history and the high PEmg and PB ratios, while the Enterprising Investor is only concerned with the level of debt relative to the net current assets. Therefore, all Enterprising Investors should feel very comfortable proceeding with the next stage of the analysis, which is a determination of an estimate of intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $0.69 in 2011 to an estimated $1.11 for 2015. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 9.2% over the next 7-10 years.

The company’s recent earnings history shows an average annual growth in EPSmg of around 12.33%. The ModernGraham valuation model reduces such a rate to a more conservative figure, assuming some slowdown will occur, but still returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating B&G Foods is fairly valued at the present time.  (See the full valuation)

Infosys (INFY)

500px-Infosys_logo.svgInfosys qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the high PEmg 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 comfortable proceeding with the evaluation.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.58 in 2011 to $0.79 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 5.95% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Precision Castparts Corporation (PCP)

200px-Precision_Castparts_Corp_logo.svgPrecision Castparts Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned by the high PEmg and PB ratios, while the Enterprising Investor is only concerned with the level of debt relative to the net current assets. Therefore, all Enterprising Investors should feel very comfortable proceeding with the next stage of the analysis, which is a determination of an estimate of intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $6.81 in 2011 to $10.32 for 2015. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 5.91% over the next 7-10 years.

The company’s recent earnings history shows an average annual growth in EPSmg of around 7.74%. The ModernGraham valuation model reduces such a rate to a more conservative figure, assuming some slowdown will occur, but still returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating Precision Castparts Corporation is fairly valued at the present time.  (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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