C.R. Bard Inc. is a very intriguing company for Enterprising Investors, having passed all five of the investor type’s requirements. The company does not quite qualify for the Defensive Investor due to the high PEmg and PB ratios.
Archives for March 2014
This is the sixth discussion of the ModernGraham Book Club’s reading of The Intelligent Investor by Benjamin Graham. This week we will discuss the sixth chapter, which is titled “Portfolio Policy for the Enterprising Investor: Negative Approach.” Even if you don’t have the book I think you will find our discussions to be very useful in your own understanding of value investing, and you can still bring a lot to the discussion from your own experiences as an investor.
Actavis is not suitable for either the Defensive Investor or the Enterprising Investor. In fact, the company fails all five of the Enterprising Investor’s requirements and only satisfies the Defensive Investor’s requirement regarding size.
Schlumberger Ltd passes all of the requirements of the Enterprising Investor, but does not qualify for the Defensive Investor. The company’s current ratio is too low while the PEmg and PB ratios are too high for the Defensive Investor.
Motorola Solutions Inc. is not suitable for the Defensive Investor, but is suitable for the Enterprising Investor. The company only passes the Defensive Investor’s requirements regarding size and current ratio, but the Enterprising Investor’s only concern is the lack of earnings stability over the five year period.
There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five lowest PEmg (price / normalized earnings) companies reviewed by ModernGraham. Each company has been determined to be suitable for the Enterprising Investor according to the ModernGraham approach. This is a sample of one screen that is
As a recent spin-off, Zoetis has an uphill battle in the ModernGraham approach, and contains too much speculation for Intelligent Investors. Spin-offs inherently have speculation because of the uncertainty surrounding earnings results from before the spin-off (i.e. how does one determine how much the company would have earned as a stand-alone during that time?), and speculation is one of the greatest contributors to risk in investing.
Raytheon Company is suitable for the Enterprising Investor but not the Defensive Investor. The company does not satisfy the Defensive Investor’s current ratio requirement or the PB ratio requirement, but the only requirement it does not satisfy for the Enterprising Investor is the debt level relative to current assets.
We looked at 17 different companies this week. Here’s a summary of the ModernGraham Valuations. For more detailed analysis, click on the name of the company. To see screens of all of our valuations, be sure to get a copy of this month’s edition of ModernGraham Stocks and Screens! The Elite (Defensive or Enterprising and Undervalued)
XL Group does not qualify for either the Defensive Investor or the Enterprising Investor. For the Defensive Investor, the company’s failings are the lack of earnings stability over the ten year period and the lack of earnings growth over the ten year period.