NextEra Energy is not suitable for either the Defensive Investor or the Enterprising Investor. For the Defensive Investor, the concerns are the low current ratio and the high PEmg ratio. The Enterprising Investor is concerned with the high level of debt relative to the company’s current assets.
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In the last several months, Mr. Market has considerably raised his price for Caterpillar, and it now has a higher PEmg and PB ratio than it did before. As a result, the company is no longer suitable for either the Defensive Investor or the Enterprising Investor.
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.
Joy Global is a rare company in that it has passed all of the requirements of both the Defensive Investor and the Enterprising Investor. As such, it is suitable for either investor type, and value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.
Whole Foods Market is suitable for Enterprising Investors but not Defensive Investors. For Defensive Investors, the company’s current ratio is too low, it does not have a strong enough dividend history, and its PEmg and PB ratios are too high.
This is the tenth discussion of the ModernGraham Book Club’s reading of The Intelligent Investor by Benjamin Graham. This week we will discuss the tenth chapter, which is titled “The Investor and His Advisers.” 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.
