Feature Screens

5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – July 2015

5def-ent-lows_edited-1There 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 Enterprising Investor according to the ModernGraham approach. This is a sample of one screen that is included in ModernGraham Stocks & Screens.  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. Defensive Investors may also be interested in reviewing 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – June 2015 while also conducting further research into the following companies.

Be sure to also check out the history of this screen!

Here are the 5 Undervalued Companies for Enterprising Investors Near 52 Week Lows:

Weyerhauser Company (WY)

500px-Weyerhaeuser.svgWeyerhaeuser Company is suitable for the Enterprising Investor but not for the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is only concerned with the high level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with further research into the company.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.89 in 2011 to an estimated $1.47 for 2015.  This level of growth outpaces the market’s implied estimate of 5.88% annual earnings growth over the next 7-10 years, leading the ModernGraham valuation model to return an estimate of intrinsic value above the current price.  (See the full valuation)

American Express Company (AXP)

200px-American_Express_logo.svgAmerican Express Company passes the initial requirements of the Enterprising Investor, but not the more conservative Defensive Investor. The Defensive Investor has an issue with the company’s high PB ratio, 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, the company has grown its EPSmg (normalized earnings) from $3.11 in 2011 to an estimated $4.99 for 2015. This is a very strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 3.49% over the next 7-10 years. In fact, the historical growth is around 12.08% 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, but still returns an estimate of intrinsic value falling above the current price, indicating that the company is undervalued at the present time.  (See the full valuation)

Keurig Green Mountain Inc. (GMCR)

220px-Keurig_greenmount_logoKeurig Green Mountain Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short dividend history, and 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 undervalued after growing its EPSmg (normalized earnings) from $0.71 in 2011 to an estimated $3.17 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.72% 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 above the price.  (See the full valuation)

Michael Kors Holdings (KORS)

MK_COOL_GRAY_7CMichael Kors is not suitable for Defensive Investors but it does pass the initial requirements of the Enterprising Investor. The Defensive Investor is concerned with the short operating history, lack of dividends, and the high PB ratio, while the Enterprising Investor’s only concern is the lack of dividends. 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 $0.19 in 2011 to $2.81 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of only 3.82% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged considerably more than the market’s estimate 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 Michael Kors is significantly undervalued at the present time.  (See the full valuation)

Gap Inc. (GPS)

200px-Gap_logo.svgGap Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned by the low current ratio and the high PB ratio, 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 $1.59 in 2012 to an estimated $2.63 for 2016. This level of demonstrated growth outpaces the market’s implied estimate for earnings growth of 2.94% over the next 7-10 years.

The company’s recent earnings history shows an average annual growth in EPSmg of around 13%. 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 well above the current price, indicating Gap Inc. is significantly undervalued at the present time.  (See the full valuation)

What do you think?  Are these companies a good value for Enterprising 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.

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top