5 Undervalued Companies to Research for the Enterprising Investor – August 2014
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 – August 2014 while also conducting further research into the following companies.
This month, Discover Financial Services (DFS) dropped off the list and was replaced with Lincoln National Corporation (LNC).  Also, make sure to check out the history of this screen!
SLM Corporation (SLM)
SLM Corporation is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the lack of stable earnings over the last ten years and the lack of consistent dividend payments over the last ten years.  However, the company passes all of the Enterprising Investor’s requirements and the investor type thus has no significant initial concerns. 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 such as through ModernGraham’s valuation of Discover Financial Services (DFS).  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.28 in 2010 to an estimated $1.53 for 2014.  This level of demonstrated growth supports the market’s implied estimate of negative 1.52% 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)
Ford Motor Company (F)
Ford 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)
Freeport McMoRan Copper & Gold (FCX)
Freeport-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)
Fifth Third Bancorp (FITB)
Fifth 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 through a review of ModernGraham’s valuation of JP Morgan Chase (JPM) and ModernGraham’s valuation of Wells Fargo (WFC).  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)
Lincoln National Corporation (LNC)
Lincoln National is suitable for Enterprising Investor but not for Defensive Investors.  The Defensive Investor is concerned by the insufficient earnings stability or growth over the last ten years, though 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 feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $1.42 in 2010 to an estimated $4.18 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.94% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)
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: Â 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.
