5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – August 2014

5def-und-lows_edited-1

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five undervalued companies reviewed by ModernGraham trading closest to their 52 week low. Each of these companies has been determined to be suitable for the Defensive Investor according to the ModernGraham approach. 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 Dow Companies to Research – June 2014 while also conducting further research into the following companies.

This month, BBBY and JPM drop off the list and are replaced by MAT and COH.  Be sure to check out the history of this screen to see which companies have been selected in the past.

Mattel Inc. (MAT)

200px-Mattel-brand.svgMattel qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only initial concern is the high PB ratio, while the Enterprising Investor has no concerns.  Therefore, 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 including a review of ModernGraham’s valuation of Hasbro Inc. (HAS).  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.53 in 2010 to an estimated $2.21 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.72% 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)
MAT Chart

MAT data by YCharts

CA Inc. (CA)

500px-CA_Technologies_brand.svgCA Inc. qualifies for Defensive Investors and thus also qualifies for Enterprising Investors.  The Defensive Investor’s only concern is the low current ratio, and even though the Enterprising Investor has concerns with the level of debt relative to the current assets, the Enterprising Investor is satisfied because the company is suitable for Defensive Investors.  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 its competitors by exploring the ModernGraham Valuation Index.  From a valuation perspective, the company appears to be undervalued, after growing its EPSmg (normalized earnings) from $1.06 in 2010 to $1.91 for 2014.  This demonstrated level of growth is greater than the market’s implied estimate of 3.37% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is above the market price at this time.  (See the full valuation)
CA Chart

CA 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 & 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 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 long position in both Coach Inc. (COH) and Deere & Co. (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.


Posted

in

,

by

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.