5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows – May 2014

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five undervalued companies reviewed by ModernGraham trading closest to their 52 week low. Each of these companies has been determined to be suitable for the Enterprising 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 Near 52 Week Lows – May 2014 while also conducting further research into the following companies.

This is the first month we have featured this screen.

Coach, Inc. (COH)

Coach 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 short dividend history and the high PB ratio.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company but should also compare it to other opportunities through a review of 5 Low PEmg Companies for the Defensive Investor and 5 Low PEmg Companies for the Enterprising Investor.  From a valuation perspective, the company looks significantly undervalued after having grown its EPSmg (normalized earnings) from $2.03 in 2010 to an estimated $3.19 for 2014.  This demonstrated level of growth outpaces the market’s implied estimate of 3.52% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price. (See the full valuation)

COH data by YCharts

Bed Bath & Beyond Inc. (BBBY)

Bed Bath & Beyond is a great company for Defensive Investors and Enterprising Investors to consider.  The only concern for either investor type is the lack of dividend payments.  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 comparing it to other opportunities.  From a valuation perspective, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $2.38 in 2010 to an estimated $4.60 for 2014.  This demonstrated level of growth surpasses the market’s implied estimate of 2.5% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the price.  (See the full valuation)

BBBY data by YCharts

Family Dollar Stores Inc. (FDO)

Family Dollar Stores qualifies for the Enterprising Investor after passing all five of the investor type’s requirements.  The company does not qualify for the Defensive Investor at this time due to the low current ratio and the high PB ratio.  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 as well as some of its competitors for comparative purposes, including a review of ModernGraham’s valuation of Dollar General (DG) and ModernGraham’s valuation of Walmart Stores (WMT).  From a valuation side of things, the company appears undervalued after growing its EPSmg (normalized earnings) from $2.06 in 2010 to an estimated $3.41 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 4.25% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.  (See the full valuation)

FDO data by YCharts

International Paper Co. (IP)

International Paper is suitable for Enterprising Investors but not Defensive Investors.  The company’s current ratio is too low and there has been insufficient earnings stability in the last ten years for the Defensive Investor.  The Enterprising Investor’s only concern is with the high level of debt relative to the current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of 5 Undervalued Companies for the Enterprising Investor.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.74 in 2009 to $2.35 for 2013.  This level of demonstrated growth outpaces the market’s implied estimate of 5.46% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.  (See the full valuation)

IP data by YCharts

Waters Corporation (WAT)

Waters Corporation is not suitable for the Defensive Investor because it does not pay a dividend and is currently trading at high PEmg and PB ratios.  The Enterprising Investor is willing to overlook the lack of a dividend payment, however, because the company passes all of the investor type’s other requirements.  As a result, Enterprising Investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.  further research should also include a review of other opportunities.  As for a valuation, the company has grown its EPSmg (normalized earnings) from $2.89 in 2009 to $4.82, an impressive level of demonstrated historical growth that supports the market’s implied estimate of earnings growth of 7.43%.  Accordingly, the ModernGraham valuation model returns an estimate of intrinsic value that is within a margin of safety relative to the market price, and the company appears to be fairly valued.  (See the full valuation)

WAT 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 Coach Inc. (COH) 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.