5 Undervalued Companies to Research for the Enterprising Investor – June 2014

image (5)There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five most undervalued 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, available to premium members.  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. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors, so Enterprising Investors may also be interested in reviewing 5 Undervalued Companies for the Defensive Investor – June 2014 while also conducting further research into the following companies.

This month, there were no changes from last month in the companies appearing on the list, but make sure to check out the history of this screen!

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.  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 0.08% 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.  (Read the full valuation here)

F Chart

F data by YCharts

Freeport-McMoRan Copper & Gold Inc. (FCX)

500px-Freeport_McMoRan.svgFreeport-McMoRan satisfies the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the low current ratio, as well as the lack of earnings stability over the last ten years and the lack of stable dividend payments over that time frame.  The Enterprising Investor’s only concern is with the high level of debt relative to the net current assets.  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 it to other opportunities.  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $0.01 in 2010 to an estimated $2.95 for 2014.  This level of demonstrated growth more than supports the market’s implied estimate of 1.51% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price. (Read the full valuation here)

FCX Chart

FCX data by YCharts

Capital One Financial (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).  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 1.93% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.  (Read 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 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 2.53% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.  (Read the full valuation here)

DFS Chart

DFS data by YCharts

Gannett Co., Inc. (GCI)

500px-Gannett_logo_2011.svgGannett Co. is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the lack of earnings stability or growth over the last ten years.  The Enterprising Investor has a shorter time horizon, though, and only finds a concern with regard to the high level of debt relative to the net current assets.  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 other opportunities through a review of 5 Low PEmg Companies for the Defensive Investor.  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from -$3.75 in 2010 to an estimated $2.06 for 2014.  This solid level of demonstrated growth leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.  (Read the full valuation here)
GCI Chart

GCI 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 position in 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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