Feature Value Investing Weekly

The 16 Best Stocks For Value Investors This Week – 8/1/15

We evaluated 32 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 32 companies, only 16 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors.  Here’s a summary of those 16 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:

Allstate Corporation (ALL)

Allstate 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 $1.38 in 2011 to an estimated $4.97 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of only 2.69% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 52% 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 Allstate is significantly undervalued at the present time.  (See the full valuation)

BlackRock Inc. (BLK)

BlackRock Inc. passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor has no initial concerns, while the Enterprising Investor is only concerned by 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 $9.43 in 2011 to an estimated $17.67 for 2015. This is a fairly strong level of demonstrated growth and outpaces the market’s implied estimate for annual earnings growth of 5.38% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 17.5% 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 BlackRock Inc. is significantly undervalued at the present time.  (See the full valuation)

BorgWarner Inc. (BWA)

BorgWarner is not suitable for Defensive Investors but it does pass the initial requirements of the Enterprising Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, the inconsistent dividend history, and the high PEmg and PB ratios, 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 $1.24 in 2011 to an estimated $2.76 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of 4.91% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged nearly 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 BorgWarner is significantly undervalued at the present time.  (See the full valuation)

Comerica Inc. (CMA)

Comerica Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the insufficient earnings growth or stability over the last ten years, while the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising 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 $1.24 in 2011 to an estimated $2.81 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 4.25% 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)

Honeywell International Inc. (HON)

Honeywell International is not suitable for Defensive Investors but it does pass the initial requirements of the Enterprising Investor. The Defensive Investor is concerned with the low current ratio and the high PEmg and PB ratios, while the Enterprising Investor’s only concern is the low current ratio. 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 $2.68 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 5.91% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged nearly 18% 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 Honeywell International is significantly undervalued at the present time.  (See the full valuation)

Starwood Property Trust Inc. (STWD)

Starwood Property Trust Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the short history as a publicly traded company, while the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising 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 $0.76 in 2011 to an estimated $1.98 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 1.18% 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)

Western Refining Inc. (WNR)

Western Refining Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years as well as the inconsistent dividend record over that period.  The Enterprising Investor is only initially 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 comfortable proceeding with the evaluation.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $0.13 in 2011 to a gain of $3.97 for 2015.  This level of demonstrated earnings growth surpasses the market’s implied estimate of 1.35% 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)

The Good

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

Google Inc. (GOOG)

Google Inc. 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 PEmg and PB ratios. The Enterprising Investor is only initially concerned with 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 $11.85 in 2011 to an estimated $20.37 for 2015. This level of demonstrated growth supports the market’s implied estimate for annual earnings growth of 11.93% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 14.37% annually. The ModernGraham valuation model reduces the actual growth to an even 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 Google Inc. is fairly valued at the present time.  (See the full valuation)

Hanesbrands Inc. (HBI)

Hanesbrands 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 is only initially 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 comfortable proceeding with the evaluation.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.46 in 2011 to an estimated $1.07 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 11.31% 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)

KKR & Co. LP (KKR)

KKR & Co. LP qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the short history as a publicly traded company, while the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising 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 $0.44 in 2011 to an estimated $1.83 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 2.32% 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)

Motorola Solutions (MSI)

Motorola Solutions is not suitable for Defensive Investors but it does pass the initial requirements of the Enterprising Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the inconsistent dividend history, and the 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, it has grown its EPSmg (normalized earnings) from a loss of $0.15 in 2011 to an estimated gain of $3.73 for 2015. This is a robust level of demonstrated growth and outpaces the market’s implied estimate for annual earnings growth of 3.65% over the next 7-10 years.

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

Nordstrom Inc. (JWN)

Nordstrom 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 PEmg and PB ratios, while the Enterprising Investor is only concerned by 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 $2.62 in 2012 to an estimated $3.62 for 2016. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 6.3% over the next 7-10 years.

The company’s recent earnings history shows an average annual growth in EPSmg of around 7.7%. 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 Nordstrom Inc. is fairly valued at the present time.  (See the full valuation)

Raytheon Company (RTN)

Raytheon Company passes the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio and the high PB ratio. The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets. 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 $4.95 in 2011 to an estimated $6.38 for 2015. This level of demonstrated growth supports the market’s implied estimate for annual earnings growth of 3.84% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 5.8% annually. The ModernGraham valuation model reduces the actual growth to an even 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 Raytheon Company is fairly valued at the present time.  (See the full valuation)

Skyworks Solutions Inc. (SWKS)

Skyworks Solutions Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short dividend history, the lack of earnings stability over the last ten years, 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 fairly valued after growing its EPSmg (normalized earnings) from $0.82 in 2011 to an estimated $2.66 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 14.13% 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)

Tractor Supply Company (TSCO)

Tractor Supply Company qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, 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 fairly valued after growing its EPSmg (normalized earnings) from $1.08 in 2011 to an estimated $2.53 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 14.06% 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)

Zoetis Inc. (ZTS)

Zoetis Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the short history as a stand-alone company, and the high PEmg and PB ratios.  The Enterprising Investor is only initially 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 comfortable proceeding with the evaluation.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.18 in 2011 to an estimated $1.20 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 16.09% 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)

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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