5 Companies to Research with the Lowest PEmg Ratios for Defensive Investors – June 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 – June 2014 while also conducting further research into the following companies.

Be sure to check out the archive of this screen!  This month, Chevron (CVX) and Unum Group (UNM) were replaced by CF Industries (CF) and Deere & Co. (DE).

Aflac Inc. (AFL)

500px-Aflac.svgAflac accomplishes a rare feat by passing all of the requirements of both the Defensive Investor and the Enterprising Investor.  Neither investor type has any major concerns with the company, and all value 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 competitors such as through a review of ModernGraham’s valuation of Chubb Corporation (CB) and ModernGraham’s valuation of Allstate Corporation (ALL).  From a valuation side of things, Aflac looks significantly undervalued after growing its EPSmg (normalized earnings) from $3.66 in 2010 to an estimated $5.96 in 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of only 0.94% earnings growth and leads the ModernGraham valuation model, which is based on one of Benjamin Graham’s formulas, to return an estimate of intrinsic value well above the market price.  (See the full valuation)
AFL Chart

AFL data by YCharts

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 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 1.0% 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

CF Industries Holdings (CF)

CfindustrieslogoCF Industries is a very intriguing company for both Defensive Investors and Enterprising Investors.  The Defensive Investor’s only concern is the lack of earnings stability over the last ten years, while the Enterprising Investor’s only issue is with the level of debt relative to the net current assets.  As a result, value 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.  Looking at the company from a valuation angle shows the company to be significantly undervalued after growing its EPSmg (normalized earnings) from $7.11 in 2010 to an estimated $21.47 for 2014.  This strong level of demonstrated growth greatly exceeds the market’s implied estimate of 1.23% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the price.  (See the full valuation)
CF Chart

CF data by YCharts

National Presto Industries (NPK)

national-presto-industries_200x200National Presto Industries qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only major concern with the company is the fact that it is smaller than the investor type’s requirement, while the company passes all of the Enterprising Investor’s requirements.  As a result, value 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.  As for the valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $7.84 in 2010 to only an estimated $6.18 for 2014.  This demonstrated drop in earnings does not support the market’s implied estimate of 1.6% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value falling well below the market price. (See the full valuation)
NPK Chart

NPK data by YCharts

Deere & Co. (DE)

500px-John_Deere_logo.svgDeere & Co. is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is with the high PB ratio while the Enterprising Investor has no significant concerns.  As a result, value 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 through a review of ModernGraham’s valuation of Caterpillar Inc. (CAT).  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $3.68 in 2010 to an estimated $7.77.  This strong level of demonstrated growth is greater than the market’s implied estimate of 1.57% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s methods, to return an estimate of intrinsic value that is well above the market price at this time.  (See the full valuation)
DE Chart

DE data by YCharts

What do you think?  Are these companies a good value for Defensive 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 did not hold a position in any 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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