5 Most Undervalued Companies for the Enterprising Investor – 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 companies reviewed by ModernGraham. Each company 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, available to premium members.  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, so Enterprising Investors may also be interested in reviewing 5 Undervalued Companies for the Defensive Investor – October 2014 while also conducting further research into the following companies.

Be sure to check out the history of this screen!

SLM Corporation (SLM)

SLM Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s lack of earnings or dividend stability over the last ten years, 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 further 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 $0.15 in 2010 to an estimated $1.57 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of negative 1.45% 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.  (Read the full valuation here)

PulteGroup, Inc. (PHM)

PulteGroup qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the lack of earnings stability or growth over the last ten years.  The Enterprising Investor is concerned by the lack of earnings stability over the last five years.  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.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $4.20 in 2010 to an estimated gain of $2.03 for 2014.  This level of earnings growth outpaces the market’s implied estimate of 0.56% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (Read the full valuation here)

Capital One Financial (COF)

Defensive Investors, the most conservative level of ModernGraham style investing, may not be interested in Capital One Financial due to the unstable earnings and low earnings growth over the last ten years, but Enterprising Investors should be very interested. The company passes all of the investor types’ requirements, and they should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

In recent years, the company has grown its EPSmg (normalized earnings) from $3.20 in 2010 to an estimated $6.86 for 2014. This is an outstanding level of growth, which significantly outpaces the market’s implied estimate of only 1.46%. In fact, the actual growth demonstrated by the company is greater than twenty percent. As a result of the strong growth demonstrated historically, the ModernGraham valuation model returns an estimate of intrinsic value well above the price, supporting a clear conclusion that the company is significantly undervalued. Enterprising Investors are therefore encouraged to proceed with further research to determine whether Capital One Financial is suitable for their own individual portfolios.  (See the full valuation on Seeking Alpha)

Fifth Third Bancorp (FITB)

Fifth Third Bancorp qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings stability or growth 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 $0.02 in 2010 to an estimated $1.61 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.16% 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.  (Read the full valuation here)

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.