5 Lowest PEmg Companies for the Enterprising Investor – June 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.  This month, Ford Motor Company (F), Discover Financial Services (DFS), and Coach (COH) are replaced by The Chubb Corporation (CB), WellPoint Inc. (WLP), and Fifth Third Bancorp (FITB).

Freeport McMoRan (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 1.43% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (See the full valuation)
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) 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)
COF Chart

COF data by YCharts

The Chubb Corporation (CB)

500px-Chubb_Corporation_logo.svgChubb Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the company’s insufficient level of growth over the ten year period, but the company passes all of the Enterprising Investor’s criteria.  As a result, the 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 competitors such as through a review of ModernGraham’s valuation of Aflac Inc. (AFL) and ModernGraham’s valuation of Travelers Companies (TRV).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $6.22 in 2010 to an estimated $7.13 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 2.35% 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 falling within a margin of safety relative to the price.  (See the full valuation)
CB Chart

CB data by YCharts

WellPoint Inc. (WLP)

220px-WellPoint_logo.svgWellPoint Inc. qualifies for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the short dividend record, but the company passes all of the requirements for the Enterprising Investor.  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 through a review of ModernGraham’s valuation of UnitedHealth Group (UNH) and ModernGraham’s valuation of Cigna Corporation (CI).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $6.96 in 2010 to an estimated $8.18 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 2.24% earnings growth and leads the ModernGraham valuation model, which is based on one of Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the market price.  (See the full valuation)
WLP Chart

WLP data by YCharts

Fifth Third Bancorp (FITB)

220px-Fifth_Third_Bank.svgFifth Third Bancorp is suitable for Enterprising Investors but not for Defensive Investors, who are concerned with the lack of earnings stability over the last ten years and the lack of earnings growth over the same period.  The company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.02 in 2010 to an estimated $1.59 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.43% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the market price.  (See the full valuation)
FITB Chart

FITB 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 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.  Company logos were obtained from Wikipedia for the sole purpose of identifying the company; this article is not related to the companies mentioned in any capacity.


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