Feature Screens

5 Undervalued Companies for Defensive Investors With High Dividend Yields – July 2015

5def-und-divThere are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five highest dividend yields among the undervalued companies for defensive investors reviewed by ModernGraham. Each company has been determined to be suitable for Defensive Investor according to the ModernGraham approach. This is a sample of one screen that is included in ModernGraham Stocks & Screens, which is available for premium subscribers.  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. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

Be sure to check out the history of this screen!

Helmerich & Payne (HP)

logo_HPIHelmerich & Payne Inc. is suitable for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of each investor type, which is a rare accomplishment indicative of the company’s strong financial position.  As a result, 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 $3.24 in 2011 to an estimated $5.11 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 2.97% 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)

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)

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)

Cummins Inc. (CMI)

Logo_cumminsCummins performs well in the ModernGraham model and is suitable for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio while the Enterprising Investor has no initial concerns. 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 $5.78 in 2011 to an estimated $8.88 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 3.74% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged over 10.7% 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)

What do you think?  Are these companies a good value for Defensive 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.  Company logos are taken from Wikipedia or the company website for the sole purpose of identifying the company; this website is not affiliated with the companies it writes about in any way.

 

 

 

 

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