There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five highest dividend yields among the undervalued companies reviewed by ModernGraham. Each company has been determined to be suitable for Defensive Investor according to the ModernGraham approach. This is a sample of one screen that is 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!
Mattel Inc. (MAT)
Mattel Inc. achieves the rare feat of passing all of the requirements of both the Defensive Investor and the Enterprising Investor, so neither investor type has any initial concerns with the company.  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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.52 in 2010 to an estimated $2.12 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.04% 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)
Coach Inc. (COH)
Coach is an outstanding company for consideration by both Defensive Investors and Enterprising Investors. The only concern either investor type has is the Defensive Investor’s concern about the short dividend history. Other than that, the company passes all of the requirements with flying colors. As a result, 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 $2.01 in 2010 to an estimated $3.26 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 $1.32 for the period of 2005-07 to an average of $3.44 for the period of 2012-14. This strong level of demonstrated historical growth leads the ModernGraham valuation model to estimate a growth rate of 9.37% over the next 7-10 years. Though this is a high figure, the company has achieved a growth rate of 12.49% over the historical period under review. As a result, the company could see a 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 $88.84, which is well above the market’s current price of the company. In fact, even with a growth rate estimate of only 3% over the next 7-10 years, the company’s value would be $47.30, which is still above the market’s current price. Value investors are therefore encouraged to proceed with further research to determine whether Coach Inc. is suitable for their own individual portfolios. (See the full valuation on Seeking Alpha)
Chevron Corporation (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)
Helmerich & Payne Inc. (HP)
Helmerich & Payne is suitable for either the Defensive Investor or the Enterprising Investor.  In fact, the company passes all of the requirements of both investor types, which is a very rare accomplishment.  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 to be undervalued after growing its EPSmg (normalized earnings) from $2.99 in 2010 to an estimated $5.58 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.11% 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)
CA, Inc. (CA)
CA Incorporated qualifies for either the Defensive Investor or the Enterprising Investor with a dividend yield of 3.58%.  The Defensive Investor’s only concern is the low current ratio, and the company qualifies for the Enterprising Investor by default.  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 $1.32 in 2011 to an estimated $2.08 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 2.53% 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)
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: Â The author held a long position in Coach Inc. (COH) 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. Â Company logos are taken from Wikipedia or the company website for the sole purpose of identifying the company; this website is not affiliated with the companies it writes about in any way.
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