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Value Investing Research Since 2006

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Saturday, January 19, 2019

12 Best Stocks for Value Investors This Week – 2/4/17


I evaluated 39 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. I 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 39 companies, only 12 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors.  Therefore, these companies are the best undervalued stocks of the week.

The Elite

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

CNO Financial Group Inc (CNO)

CNO Financial Group Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.43 in 2012 to an estimated $1.1 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.55% 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.

At the time of valuation, further research into CNO Financial Group Inc revealed the company was trading below its Graham Number of $24.73. The company pays a dividend of $0.3 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 17.6, which was below the industry average of 18.78, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

Discover Financial Services (DFS)

Discover Financial Services qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.98 in 2013 to an estimated $5.5 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.03% 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.

At the time of valuation, further research into Discover Financial Services revealed the company was trading above its Graham Number of $62.08. The company pays a dividend of $1.16 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 12.56, which was below the industry average of 23.3, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

Gap Inc (GPS)

Gap Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.87 in 2013 to an estimated $2.21 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.94% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Gap Inc revealed the company was trading above its Graham Number of $15.43. The company pays a dividend of $0.92 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.37, which was below the industry average of 22.16, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-1.53.  (See the full valuation)

Harman International Industries Inc (HAR)

Harman International Industries Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor 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 should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.09 in 2013 to an estimated $4.81 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Harman International Industries Inc revealed the company was trading above its Graham Number of $69.19. The company pays a dividend of $1.4 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 23.12, which was above the industry average of 18.47. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.03.  (See the full valuation)

Janus Capital Group Inc (JNS)

Janus Capital Group Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.32 in 2013 to an estimated $0.8 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.35% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Janus Capital Group Inc revealed the company was trading below its Graham Number of $13.5. The company pays a dividend of $0.42 per share, for a yield of 3.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 15.2, which was below the industry average of 21.33, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-1.97.  (See the full valuation)

Super Micro Computer Inc (SMCI)

Super Micro Computer, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, and poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.64 in 2013 to an estimated $1.42 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.17% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Super Micro Computer, Inc. revealed the company was trading above its Graham Number of $21.83. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 18.85, which was below the industry average of 38.13, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $10.02.  (See the full valuation)

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The Good

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

Coherent Inc (COHR)

Coherent, Inc. is suitable 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, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.43 in 2013 to an estimated $4.54 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 12.98% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Coherent, Inc. revealed the company was trading above its Graham Number of $79.18. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 34.46, which was above the industry average of 28.12. Finally, the company was trading above its Net Current Asset Value (NCAV) of $23.15.  (See the full valuation)

Edwards Lifesciences Corp (EW)

Edwards Lifesciences Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.02 in 2012 to an estimated $2.52 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 14.91% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Edwards Lifesciences Corp revealed the company was trading above its Graham Number of $27.04. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 38.31, which was above the industry average of 32.29. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.4.  (See the full valuation)

Scotts Miracle-Gro Inc (SMG)

Scotts Miracle-Gro Co is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the high PEmg and PB ratios. 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 should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.38 in 2013 to an estimated $3.8 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 8% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Scotts Miracle-Gro Co revealed the company was trading above its Graham Number of $33.48. The company pays a dividend of $1.91 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 24.49, which was above the industry average of 13.11. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-17.77.  (See the full valuation)

Standard Motor Products Inc (SMP)

Standard Motor Products, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, the poor 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 should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.45 in 2012 to an estimated $2.21 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 6.95% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Standard Motor Products, Inc. revealed the company was trading above its Graham Number of $34.18. The company pays a dividend of $0.66 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 22.4, which was above the industry average of 18.47. Finally, the company was trading above its Net Current Asset Value (NCAV) of $7.93.  (See the full valuation)

SNC-Lavalin Group Inc (TSE:SNC)

Snc-Lavalin Group Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.41 in 2012 to an estimated $3.45 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 3.91% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Snc-Lavalin Group Inc revealed the company was trading above its Graham Number of $37.17. The company pays a dividend of $1.03 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 16.32, which was below the industry average of 28.49, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-8.39.  (See the full valuation)

U.S. Bancorp (USB)

U.S. Bancorp qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.54 in 2013 to an estimated $3.23 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 4.05% 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.

At the time of valuation, further research into U.S. Bancorp revealed the company was trading above its Graham Number of $43.28. The company pays a dividend of $1.07 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 16.6, which was below the industry average of 21.43, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

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 that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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