buy azithromycin no persciption antibioticsonlinerx
Feature Screens

5 Undervalued Companies for Value Investors with a High Beta – February 2015

20140530-054905-20945379.jpgThere 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 highest beta.  A company’s beta indicates the correlation at which its price moves in relation to the market.  A beta greater than 1 indicates a company is more 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 high beta, Mr. Market may turn these companies around very quickly, so be sure to check them out in depth!

Michael Kors Holdings Ltd (KORS)

MK_COOL_GRAY_7CMichael Kors Holdings Limited qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the insufficient earnings stability, short earnings history, lack of dividends, and the high PEmg and PB ratios.  The Enterprising Investor is only concerned by the lack of dividends.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.19 in 2011 to an estimated $2.75 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 9.21% 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)

Joy Global Inc. (JOY)

2012_JGI_logo_wikipediaJoy Global 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 $3.89 in 2010 to an estimated $4.85 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.08% 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)

Lincoln National Corporation (LNC)

LfglogoLincoln National Corporation is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of stable earnings over the last ten years, and 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 $1.25 in 2010 to an estimated $4.28 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.33% 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)

National Oilwell Varco (NOV)

National_Oilwell_Varco_Logo.svgNational Oilwell Varco passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern at this initial stage is the short dividend history while the Enterprising Investor has no issues. As a result, value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $3.88 in 2010 to $5.48 for 2014. This is a very strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of only 1.85% over the next 7-10 years. In fact, the historical growth is around 8.25% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, and therefore returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time. (See the full valuation on Seeking Alpha)

Lyondell Bassell Industries (LYB)

220px-Logo_Lyondellbasell.svgLyondellBasell Industries is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the company’s short history post-bankruptcy, and the high PB ratio, 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.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.93 in 2010 to an estimated $6.25 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 3.08% 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 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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top