5 Companies to Research with the Lowest PEmg Ratios for the Defensive Investor – July 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, Ensco plc (ESV) and CF Industries Holdings (CF) were replaced by Coach Inc. (COH) and Unum Group (UNM).

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

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

Coach, Inc. (COH)

Official_Coach_Inc_LogoCoach qualifies for either the Defensive Investor or the Enterprising Investor. The Defensive Investor’s only concern with the company is the short dividend history while the company passes all of the requirements of the Enterprising Investor. 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 such as through a review of ModernGraham’s valuation of Ralph Lauren (RL). As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.03 in 2010 to an estimated $3.20 for 2014. This level of demonstrated growth outpaces the market’s implied estimate of 1.22% 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)
COH Chart

COH data by YCharts

Deere & Company (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

Unum Group (UNM)

Unum-logoUnum Group is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, which is a rare accomplishment.  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 the company to other opportunities such as through a review of Aflac Inc. (AFL), Chubb Corporation (CB) and Travelers Companies (TRV).  From a valuation side of things, the company appears undervalued after growing its EPSmg (normalized earnings) from $2.25 in 2010 to an estimated $2.97 for 2014.  This level of demonstrated growth is stronger than the market’s implied estimate of 1.48% 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)
UNM Chart

UNM 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 held a long position in Coach Inc. (COH) and Deere & Company (DE) 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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