5 Undervalued Dow Components to Research – November 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 Dow Components reviewed by ModernGraham which are suitable for the Defensive Investor or the Enterprising Investor according to the ModernGraham approach. This is a sample of the types of screens included in ModernGraham Stocks & Screens, which is available for premium subscribers.  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.

Be sure to check out the history of this screen, including the companies which have been chosen in the past.

JP Morgan Chase (JPM)

JP 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)

Chevron Corp (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)

Intel Corp (INTC)

Intel Corporation is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, which is a rare accomplishment.  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 $1.27 in 2010 to an estimated $2.09 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.91% 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)

American Express Company (AXP)

American Express Company is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the high PEmg and PB ratios, but 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 Discover Financial Services (DFS) and ModernGraham’s valuation of Capital One Financial (COF).  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.68 in 2010 to an estimated $4.63 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 5.78% 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)

The Boeing Company (BA)

Boeing Company qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the high PB ratio.  The Enterprising Investor’s only initial concern is with the low current ratio.  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 $3.61 in 2010 to an estimated $6.26 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 5.59% 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)

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:  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.  Company logos were taken from Wikipedia; ModernGraham has no affiliation with any of the companies mentioned.