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Feature Value Investing Weekly

18 Companies to Research This Week – 8/30/2014

image (7)We evaluated 18 different companies this week to determine whether they are suitable for Defensive Investors, those unwilling to do substantial research, or Enterprising Investors, those who are willing to do such research. We also put each company through the ModernGraham valuation model based on Benjamin Graham’s value investing formulas in order to determine an intrinsic value for each. Here’s a summary of the ModernGraham Valuations. To see a listing and screenings of all the valuations, be sure to sign up to be a premium subscriber!

The Elite (Defensive or Enterprising and Undervalued)

Chevron Corporation (CVX)

500px-Chevron_Logo.svgChevron 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)

Dover Corporation (DOV)

Dover-co-logoDover Corporation qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is the high PB ratio, and the Enterprising Investor’s only issue is with the high level of debt relative to the net 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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.14 in 2010 to an estimated $4.83 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.94% 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)

FMC Corporation (FMC)

web_logos_fmcFMC Corporation is not suitable for the Defensive Investor but does satisfy the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio, lack of dividend payments and the high PB ratio, while the Enterprising Investor has no initial concerns.  As a result, Enterprising 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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.55 in 2010 to an estimated $3.38 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 5.42% 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)

Franklin Resources Inc. (BEN)

Franklin_Resources_LogoFranklin Resources qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only issue with the company is the high PB ratio, while the Enterprising Investor has no initial concerns.  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 $1.91 in 2010 to an estimated $3.27 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.27% 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)

The Gap Inc. (GPS)

200px-Gap_logo.svgThe Gap Inc. is not suitable for the Defensive Investor but does qualify for the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio and the high PB ratio, while the Enterprising Investor has no initial concerns.  As a result, Enterprising 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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.52 in 2011 to an estimated $2.50 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 5.00% 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)

JP Morgan Chase (JPM)

500px-J_P_Morgan_Chase_Logo_2008_1.svgJP Morgan Chase is suitable for either the Defensive Investor or the Enterprising Investor, as the company passes all of the requirements of either 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.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $2.92 in 2010 to an estimated $4.82 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.82% 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)

The Good (Defensive or Enterprising and Fairly Valued)

Baxter International Inc. (BAX)

Baxter International is not suitable for the Defensive Investor but does qualify for the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio and the high PB ratio, while the Enterprising Investor’s only initial concern is the 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 research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.88 in 2010 to an estimated $4.19 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 4.76% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Broadcom Corporation (BRCM)

Broadcom is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the lack of dividend payments and the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, Enterprising 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.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.87 in 2010 to an estimated $1.48 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 8.99% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Edwards LifeSciences Corp (EW)

Edwards Lifesciences does not qualify for the Defensive Investor but does satisfy the Enterprising Investor.  The Defensive Investor has concerns with the lack of dividend payments and the high PEmg and PB ratios, while the Enterprising Investor’s only initial concern is the lack of dividend payments.  As a result, Enterprising 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.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.53 in 2010 to an estimated $2.88 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 12.92% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Genuine Parts Company (GPC)

Genuine Parts Company does not qualify for the Defensive Investor but does satisfy for the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio and the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, Enterprising 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 fairly valued after growing its EPSmg (normalized earnings) from $2.83 in 2010 to an estimated $4.20 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 6.21% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Harman International Industries (HAR)

Harman International does not qualify for the Defensive Investor but does satisfy for the Enterprising Investor.  The Defensive Investor has numerous concerns and is only satisfied by the market cap size, while the Enterprising Investor has no initial concerns.  As a result, Enterprising 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 fairly valued after growing its EPSmg (normalized earnings) from a loss of $0.53 in 2010 to $2.86 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 15.84% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Hormel Foods Corporation (HRL)

Hormel Foods is not suitable for the Defensive Investor but does satisfy for the Enterprising Investor.  The Defensive Investor has concerns with the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, Enterprising 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 perspective, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.25 in 2010 to an estimated $1.95 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 8.63% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Lorillard Inc. (LO)

Lorillard does not qualify for the Defensive Investor but does satisfy for the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio and lack of dividend payments, while the Enterprising Investor’s only concern is 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 research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from a loss of $1.94 in 2010 to an estimated $3.00 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 5.70% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

The Mediocre (Defensive or Enterprising and Overvalued)

Bemis Company (BMS)

Bemis Company is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only issue with the company is the insufficient earnings growth over the last ten years, while the Enterprising Investor’s only initial concern is with the high level of debt relative to the net 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.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.67 in 2010 to an estimated $2.05 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.60% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (See the full valuation)

Cerner Corporation (CERN)

Cerner Corporation is not suitable for the Defensive Investor but does qualify for the Enterprising Investor.  The Defensive Investor has concerns with the lack of dividend payments and the high PEmg and PB ratios, while the Enterprising Investor’s only initial concern is the lack of dividend payments.  As a result, Enterprising 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.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.57 in 2010 to an estimated $1.19 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 19.68% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (See the full valuation)

Diamond Offshore Drilling (DO)

Diamond Offshore Drilling qualifies for the Defensive Investor and by default also qualifies for the Enterprising Investor.  The Defensive Investor’s only concern is the lack of sufficient earnings growth over the last ten years.  The Enterprising Investor has an issue with the high level of debt relative to the net current assets as well as the lack of earnings growth over the last five years.  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.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $7.96 in 2010 to an estimated $4.34 for 2014.  This demonstrated drop in earnings does not support the market’s implied estimate of 0.73% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (See the full valuation)

Johnson & Johnson (JNJ)

Johnson & Johnson is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned by the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, Enterprising 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 standpoint, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $4.41 in 2010 to only an estimated $4.76 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 6.58% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.  (See the full valuation)

The Bad (Speculative and Undervalued or Fairly Valued)

No companies fit this criteria this week.

The Ugly (Speculative and Overvalued)

Mr. MarketCliffs Natural Resources Inc. (CLF)

Cliffs Natural Resources does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio, and the lack of earnings stability or growth over the last ten years.  The Enterprising Investor has similar concerns with the high level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $4.40 in 2010 to an estimated $1.07 for 2014.  This demonstrated drop in earnings clearly does not support the market’s implied estimate of 3.14% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.  (See the full valuation)

Disclaimer: The author held a long position in Dover Corporation (DOV) but did not hold a position in any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours. Logos taken from either the company website or Wikipedia; this article is not affiliated with the companies in any manner.

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