Feature Value Investing Weekly

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

We evaluated 24 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 24 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:

American Express Company (AXP)

American Express 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 high PB 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 $3.11 in 2011 to an estimated $4.99 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of 3.43% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 12% 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 American Express is significantly undervalued at the present time.  (See the full valuation)

American Financial Group Inc. (AFG)

American Financial Group Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the initial requirements of both investor types, an indication that the company has  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 the evaluation.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.58 in 2011 to an estimated $5.01 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.82% 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)

Discover Financial Services (DFS)

Discover Financial Services qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the short dividend history, 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 $2.49 in 2011 to an estimated $4.87 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 1.25% 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)

Robert Half International Inc. (RHI)

Robert Half International Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth over the last ten years as well as 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 $0.84 in 2011 to an estimated $2.11 for 2015.  This level of demonstrated earnings growth surpasses the market’s implied estimate of 8.95% 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 above the price.  (See the full valuation)

US Bancorp (USB)

US Bancorp qualifies for both the Defensive Investor and the Enterprising Investor.  Neither investor type has any initial concerns.  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 $1.85 in 2011 to an estimated $3.01 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 3.26% 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)

Whole Foods Market Inc. (WFM)

Whole Foods Market Inc. 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, the inconsistent dividend history, and the high PEmg and PB ratios, while the Enterprising Investor is only initially concerned with 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 $0.70 in 2011 to an estimated $1.51 for 2015. This is a robust level of demonstrated growth and outpaces the market’s implied estimate for annual earnings growth of 7.79% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 23% 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 Whole Foods 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:

Cisco Systems Inc. (CSCO)

Cisco Systems Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only initially concerned with the short dividend record.  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 $1.21 in 2011 to an estimated $1.66 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 4.29% 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)

Estee Lauder Companies (EL)

Estee Lauder Companies 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 $1.36 in 2011 to an estimated $2.66 for 2015. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 12.54% over the next 7-10 years.

The company’s recent earnings history shows an average annual growth in EPSmg of around 19.22%. 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 Estee Lauder Companies 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.

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