5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows – November 2014

There 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 trading closest to their 52 week low. Each of these companies 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.  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 Near 52 Week Lows – October 2014 while also conducting further research into the following companies.

Be sure to also check out the history of this screen!

Michael Kors Holdings Limited (KORS)

Michael Kors qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has numerous concerns and is in fact only satisfied by the company’s size and current ratio.  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 $0.15 in 2011 to an estimated $2.63 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 10.39% 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)

Qualcomm Inc. (QCOM)

Qualcomm is a great company for both Defensive Investors and Enterprising Investors. The Defensive Investor only has one initial concern, which is the high PB ratio, and the Enterprising Investor has no initial concerns. Both investor types should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

The company has grown its EPSmg (normalized earnings) from $1.64 in 2010 to an estimated $3.93 for 2014. This demonstrates the company has achieved a strong level of growth, a fact supported by the company’s growth in regular EPS from an average of $1.55 for the period of 2005-07 to an average of $4.11 for the period of 2012-14. This strong level of demonstrated historical growth leads the ModernGraham valuation model to estimate a growth rate of 15% over the next 7-10 years. Though this is a high figure, and is actually the maximum growth rate the model will churn out, it is nearly half the growth rate the company has achieved during the historical period. As a result, the company could see a significant downturn in its growth and still achieve the ModernGraham growth estimate.

The model then utilizes Graham’s formula to return an estimate of intrinsic value of $151.38, which is well above the market’s current price of the company. Value investors are therefore encouraged to proceed with further research to determine whether Qualcomm Inc. is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

Precision Castparts Corp (PCP)

Precision Castparts qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor has no major 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 $6.76 in 2011 to an estimated $11.27 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 6.38% 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)

Viacom Inc. (VIAB)

Viacom is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has numerous concerns including the low current ratio, the short dividend history and the high PB ratio.  The Enterprising Investor’s only initial 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. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.29 in 2010 to an estimated $4.62 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.10% 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)

Ford Motor Company (F)

Ford Motor Company qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years as well as the inconsistent dividend history.  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 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 a loss of $1.14 in 2010 to an estimated gain of $1.92 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 0.27% 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)

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:  The author held a long 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.