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5 Undervalued Companies to Research with a Low Beta – November 2014

imageThere 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 with the lowest beta.  A company’s beta indicates the correlation at which its price moves in relation to the market.  A beta less than 1 indicates a company is less volatile than the market.  Each company has been determined to be suitable for either the Defensive Investor or the Enterprising 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.

With a low beta, Mr. Market may not hit these companies as harshly in a downturn, so be sure to check them out in depth!  If you’re interested in companies with a high beta instead, check out 5 Undervalued Companies with a High Beta – November 2014!

Dollar Tree, Inc. (DLTR)

logo (2)Dollar Tree is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of dividend payments and the high PEmg and PB ratios.  The Enterprising Investor’s only 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 further 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 $1.14 in 2010 to an estimated $2.62 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 7.19% 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)

Tyson Foods Inc. (TSN)

220px-Tyson_Foods_logo.svgTyson Foods Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the lack of earnings stability over the last ten years 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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.41 in 2010 to an estimated $2.27 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.25% 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)

M&T Bank Corporation (MTB)

MTBM&T Bank Corporation is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the low level of growth in earnings over the last ten years while 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 $4.95 in 2010 to an estimated $7.38 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.02% 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)

United Health Group (UNH)

UnitedHealth_Group_logo (1)UnitedHealth Group is suitable for the Defensive Investor and therefore is also suitable for the Enterprising Investor. The Defensive Investor’s only initial concern is the low current ratio, and the Enterprising Investor is willing to overlook concerns about 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. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.36 in 2010 to an estimated $5.24 for 2014. This level of demonstrated growth outpaces the market’s implied estimate of 3.53% 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)

Petsmart Inc. (PETM)

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Petsmart is suitable for the Enterprising Investor but not the Defensive Investor, who is concerned with the low current ratio and the high PB ratio. The Enterprising Investor, on the other hand, has no initial issues with the company as it has passed all of the investor type’s requirements. As a result, the Enterprising Investor should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $1.75 in 2011 to an estimated $3.62 for 2014. This demonstrated growth exceeds the market’s implied estimate of 5.27%. In fact, the demonstrated growth over the last several years is greater than 20% per year. Though sustaining a level of growth that high over the long-term is not likely, the company would have to see a significant drop in its growth in order to drop to the market’s estimate. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the market price at this time, and the company appears to be undervalued by the market. Value Investors are therefore encouraged to proceed with further research to determine whether Petsmart is suitable for their own individual portfolios.  (See the full valuation)


What do you think?  Are these companies a good value for Defensive Investors and 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 did not hold a position in any 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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