Feature Screens

5 Lowest PEmg Companies for the Enterprising Investor – May 2014

imageThere 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 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. Enterprising Investors may also be interested in reviewing 5 Undervalued Companies for the Enterprising Investor while also conducting further research into the following companies.

Check out the history of this screen to find which companies have qualified in the past.

Ford Motor Company (F)

500px-Ford_Motor_Company_Logo.svgFord Motor Company is suitable for Enterprising Investors but not for Defensive Investors.  Defensive Investors have concerns with the lack of earnings stability over the last ten years as well as the lack of a strong dividend history over that time frame.  The company passes all of the requirements of Enterprising Investors, though.  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 and its competitors by exploring the ModernGraham Valuation Index.  From a valuation perspective, the company appears to be undervalued currently, after growing its EPSmg (normalized earnings) from negative $1.14 in 2010 to an estimated $1.92 for 2014.  This demonstrated level of growth dwarfs the market’s implied estimate of a negative 0.10% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well above the market price at this time. (See the full valuation here)
F Chart

F data by YCharts

Freeport-McMoRan (FCX)

500px-Freeport_McMoRan.svgFreePort-McMoran is an interesting company in the ModernGraham valuation model.  It does not pass the requirements of the Defensive Investor, as it has not consistently paid dividends over the last ten years, and it has not shown earnings stability over the last ten years.  But it does pass the requirements of the Enterprising Investor, though it has a higher level of debt relative to current assets than the investor type likes to see.  As a result, Enterprising Investors should feel comfortable proceeding with their research, beginning with a review of a Glance at the Dow and 5 Low PEmg Companies for the Enterprising Investor.  From a valuation perspective, the ModernGraham valuation is affected significantly by the large earnings loss in 2008, which has caused the EPSmg (normalized earnings) figure for 2009 to be very low in relation to 2013.  As it stands, the EPSmg have grown from -$1.67 to $3.48, indicating a high level of growth that would appear to significantly outpace the market’s implied estimate of 0.62% earnings growth.  This has led the model to return an intrinsic value estimate that is well above the market price, and the overall result that the company is undervalued is supported by the valuation based on only 3% growth. (See the full valuation here)FCX Chart

FCX data by YCharts

Capital One Financial Corp (COF)

500px-Capital_One_Financial_logo.svgCapital One Financial is a great company for Enterprising Investors to look at in more detail, but it does not quite qualify for the Defensive Investor because it has not shown sufficient growth in its earnings over the ten year historical period.  That said, the company passes all of the requirements of the Enterprising Investor.  As a result, Enterprising 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 competitors through a review of ModernGraham’s valuation of JP Morgan Chase (JPM) and ModernGraham’s valuation of Wells Fargo Inc. (WFC).  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $3.14 in 2009 to $6.56 for 2013.  This solid level of demonstrated growth surpasses the market’s implied estimate of 1.39% 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 here)
COF Chart

COF data by YCharts

Discover Financial Services (DFS)

Discover_FinancialDiscover Financial Corp is a company that is intriguing to Enterprising Investors but does not quite qualify for the Defensive Investor.  The company has a short history as a publicly traded company and has yet to establish the dividend history the Defensive Investor requires.  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 and comparing the company to other opportunities such as through a review of Capital One Financial  (COF) and Wells Fargo (WFC).  As for the valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.78 in 2010 to an estimated $4.51 for 2014.  This solid level of demonstrated growth more than supports the market’s implied estimate of 1.96% 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)

DFS Chart

DFS data by YCharts

Coach, Inc. (COH)

Official_Coach_Inc_LogoCoach 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 Chart

COH 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 long positions in Coach, Inc. (COH) and Ford Motor Company (F) 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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