Feature Screens

The 9 Best Stocks For Value Investors This Week – 7/18/15

We evaluated 29 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 29 companies, only 9 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors.  Here’s a summary of those 9 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:

Bank of New York Mellon (BK)

Bank of New York Mellon passes the initial requirements of the Enterprising Investor but not the Defensive Investor. In fact, the company passes every requirement of the Enterprising Investor types, but the Defensive Investor is concerned by the lack of earnings stability and insufficient earnings growth over the last ten years. 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 $1.30 in 2011 to an estimated $2.14 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of only 5.72% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged nearly 13% 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 Bank of New York Mellon is significantly undervalued at the present time.  (See the full valuation)

Fifth Third Bancorp (FITB)

Fifth Third passes the initial requirements of the Enterprising Investor but not the Defensive Investor. In fact, the company passes every requirement of the Enterprising Investor types, but the Defensive Investor is concerned by the lack of earnings stability over the last ten years. 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 $0.31in 2011 to an estimated $1.67 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% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has considerably higher 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 Fifth Third is significantly undervalued at the present time.  (See the full valuation)

Illinois Tool Works (ITW)

Illinois Tool Works passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only concerned by the high PB 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 $3.18 in 2011 to an estimated $5.47 for 2015. This is a fairly strong level of demonstrated growth and outpaces the market’s implied estimate for annual earnings growth of only 4.24% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 14.34% 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 Illinois Tool Works is significantly undervalued at the present time.  (See the full valuation)

Invesco Limited (IVZ)

Invesco Limited qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the low current ratio.  The Enterprising Investor has concerns with the level of debt relative to the current assets, but is willing to overlook those issues since the company meets the more conservative Defensive Investor’s requirements.  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 undervalued after growing its EPSmg (normalized earnings) from $1.22 in 2011 to an estimated $2.17 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.49% 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 well above the price.  (See the full valuation)

Oracle Corporation (ORCL)

Oracle Corporation passes the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the lack of dividends, and the high PB ratio. 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 $1.29 in 2011 to $2.20 for 2015. This level of demonstrated growth outpaces the market’s implied estimate for annual earnings growth of 4.95% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 14% annually. The ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, but still returns an estimate of intrinsic value well above the current price, indicating that Oracle Corporation is undervalued at the present time.  (See the full valuation on Guru Focus)

Paccar Inc. (PCAR)

Paccar Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient level of growth over the last ten years and 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 undervalued after growing its EPSmg (normalized earnings) from $1.94 in 2011 to an estimated $3.75 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.48% 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 well above the price.  (See the full valuation)

The Good

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

Cigna Corporation (CI)

Cigna Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising 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 $4.11 in 2011 to an estimated $6.94 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 6.79% 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)

Quest Diagnostics Inc. (DGX)

Quest Diagnostics qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the low current ratio.  The Enterprising Investor has concerns with the level of debt relative to the current assets, but is willing to overlook those issues since the company meets the more conservative Defensive Investor’s requirements.  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 $3.34 in 2011 to an estimated $4.21 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 4.52% 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)

W.W. Grainger (GWW)

W.W. Grainger passes the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. 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 $7.12 in 2011 to an estimated $11.09 for 2015. This level of demonstrated growth supports the market’s implied estimate for annual earnings growth of 6.22% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 11.14% annually. The ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, but still returns an estimate of intrinsic value within a margin of safety relative to the current price, indicating that W.W. Grainger is fairly valued at the present time.  (See the full valuation on Guru Focus)

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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