Feature Screens

10 Low PE Stocks for the Enterprising Investor – August 2015

enterprising low PE

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected 10 low PE stocks for the Enterprising Investor.  These companies have the lowest PEmg (price / normalized earnings) ratio out of all companies reviewed by ModernGraham. Each company has been determined to be suitable for the Enterprising Investor and undervalued according to the ModernGraham approach.

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. Enterprising Investors may also be interested in reviewing the 10 Most Undervalued Companies for the Enterprising Investor while also conducting further research into the following companies.

Check out the history of this screen to find which companies have qualified in the past.

Denbury Resources Inc. (DNR)

Denbury Resources Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the company size, insufficient earnings growth or stability over the last ten years along with the short dividend history.  The Enterprising Investor is 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 $0.88 in 2011 to an estimated $1.05 for 2015.  This level of demonstrated earnings growth surpasses the market’s implied estimate of 2.58% annual earnings decline 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)

Ford Motor Company (F)

Ford Motor Company performs well in the ModernGraham model and is suitable for Enterprising Investors. The Defensive Investor is concerned with the inconsistent dividend record and the lack of earnings stability over the last ten years, while the Enterprising Investor has no initial concerns. As a result, 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $1.30 in 2011 to an estimated $1.55 for 2015. Even though this is not a very high level of growth, it is well above the market’s implied estimate of only 0.69% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged 3.8% 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)

Tegna Inc. (TGNA)

Tegna Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years along with the low current ratio.  The Enterprising Investor is 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 $2.00 in 2011 to an estimated gain of $2.50 for 2015.  This level of demonstrated earnings growth surpasses the market’s implied estimate of 1.06% 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 above the price. (See the full valuation)

Lincoln National Corporation (LNC)

Lincoln National Corporation 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, while 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 next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.80 in 2011 to an estimated $5.48 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.88% 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)

PulteGroup Inc. (PHM)

PulteGroup 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 growth or stability over the last ten years, and the unstable dividend history, while the Enterprising Investor’s only concern is the lack of earnings stability over the last five 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 a loss of $3.12 in 2011 to an estimated gain of $2.11 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of only 0.61% 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 PulteGroup is significantly undervalued at the present time, a result which is in line with some of its peers. (See the full valuation)

Seagate Technology (STX)

Seagate Technology is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings stability over the last ten years, inconsistent dividend record, and the high PB ratio.  The Enterprising Investor is only 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 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 $0.34 in 2011 to an estimated $5.01 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 1.26% 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)

Valero Energy Corporation (VLO)

Valero Energy Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, and the insufficient earnings growth or stability over the last ten years.  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 $0.95 in 2011 to an estimated $5.66 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.58% 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)

Twenty-First Century Fox (FOXA)

Twenty-First Century Fox 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, and 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 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 $0.66 in 2011 to an estimated $2.64 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of 2.11% over the next 7-10 years.  (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)

Capital One Financial (COF)

Capital One qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings 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 $4.25 in 2011 to an estimated $7.14 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 1.65% 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)

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 held a long position in Ford Motor Company (F) but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing those holdings within the next 72 hours.  This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not related to the companies mentioned in any capacity.  Please take a moment to read our detailed disclaimer.

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