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5 Low PEmg Companies for the Defensive Investor – April 2014

image (6)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 Defensive Investor according to the ModernGraham approach. This is a sample of one screen that is included in ModernGraham Stocks & Screens.  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. Defensive Investors may also be interested in reviewing 5 Undervalued Companies for the Defensive Investor – April 2014 while also conducting further research into the following companies.

This month, there were some movements in placement among the lowest PE companies, but overall no companies dropped off the list.

Ensco PLC (ESV)

ENSCO_LogoEnsco is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is the low current ratio, but the company passes all of the other requirements.  The Enterprising Investor has some concerns, but since the company is suitable for Defensive Investors it is by default also suitable for Enterprising Investors.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and comparison to other opportunities through a review of 5 Outstanding Dow Components while keeping in mind the 7 Key Tips to Value Investing.  From a valuation perspective, the company does not fare very well after seeing a drop in EPSmg (normalized earnings) from $6.13 in 2009 to $4.91 for 2013.  This lack of demonstrated earnings growth does not support the market’s implied estimate of 0.99% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well below the market price.  (See the full valuation here)

ESV Chart

ESV data by YCharts

Chevron Corporation (CVX)

500px-Chevron_Logo.svgChevron Corporation remains suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only issue with the company is the low current ratio, and the Enterprising Investor’s only issue is the high level of debt relative to the company’s current assets.  The company passes every other requirement of the two investor types.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a review of ModernGraham’s valuation of Exxon Mobil (XOM), and ModernGraham’s valuation of ConocoPhillips (COP).  From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $8.09 in 2009 to $11.58 for 2013.  This is a solid level of growth that outpaces the market’s implied estimate of earnings growth of 1.12%, and the ModernGraham valuation model accordingly returns an estimate of intrinsic value that surpasses the market price by more than our margin of safety.  Therefore, the company appears to be undervalued presently.  (See the full valuation here)

CVX Chart

CVX data by YCharts

National Presto Industries (NPK)

national-presto-industries_200x200National Presto Industries is a strong company that fares well in terms of the ModernGraham requirements for Defensive Investors and Enterprising Investors.  The company only fails the market cap requirement of the Defensive Investor.  As a result, all value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company as well as other opportunities through a review of 5 Undervalued Companies for the Enterprising Investor.  From a valuation standpoint, however, the company appears to be overvalued at the current time.  The company has grown EPSmg (normalized earnings) from $6.60 in 2009 to $6.73 in 2013, a very low level of growth that does not support the market’s current implied estimate of 1.28% earnings growth.  The ModernGraham valuation model has accordingly estimated an intrinsic value that falls below a margin of safety in relation to the price.
NPK Chart

NPK data by YCharts

AFLAC Incorporated (AFL)

500px-Aflac.svgAflac is suitable for either the Defensive Investor or the Enterprising Investor, having passed all of the requirements of each investor type.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company.  Such research may include a review of ModernGraham’s valuation of Unum Group (UNM).  From a valuation perspective, the company appears strong, having grown its EPSmg (normalized earnings) from $3.01 in 2009 to $5.59 for 2013.  This is a level of demonstrated historical growth that significantly outpaces the market’s current implied estimate of only 1.31% earnings growth.  The ModernGraham valuation model accordingly returns an estimate of intrinsic value that is well above a margin of safety when compared to the market price.
AFL Chart

AFL data by YCharts

Deere & Co. (DE)

500px-John_Deere_logo.svgDeere & Co. is an excellent company that is suitable for either the Defensive Investor or the Enterprising Investor.  The only requirement for either investor type that the company does not meet is the PB ratio.  As a result, value investors following a ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company as well as other opportunities, such as through a review of ModernGraham’s valuation of Caterpillar Inc. (CAT).  From a valuation perspective, the company appears to be significantly undervalued, having grown its EPSmg (normalized earnings) from $3.68 in 2010 to an estimated $7.62 for 2014.  This demonstrated level of growth more than supports the market’s current implied estimate of 1.91% earnings growth, leading the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

DE Chart

DE data by YCharts

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 Deere & Co. (DE) 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.

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