5 Companies to Research with the Lowest PEmg Ratio for the Defensive 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 lowest PEmg (price / normalized earnings) companies reviewed by ModernGraham. Each company has been determined to be undervalued and 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!
Aflac Inc. (AFL)
Aflac 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)
Deere & Company (DE)
Deere & 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)
Chevron Corporation (CVX)
Chevron Corporation qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only issue with the company is the low current ratio, while the Enterprising Investor is satisfied by default despite concerns with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $8.58 in 2010 to an estimated $11.50 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.33% 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)
Coach Inc. (COH)
Coach 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)
Unum Group (UNM)
Unum Group qualifies for either the Defensive Investor or the Enterprising Investor after passing all of the requirements of each investor type.  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 including a review of ModernGraham’s valuation of Aflac Inc. (AFL).  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $2.25 in 2010 to only an estimated $2.99 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.47% 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 Defensive 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 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.
