Feature Screens

5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – April 2015

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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 Defensive Investor according to the ModernGraham approach. 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.

Be sure to check out the history of this screen to see which companies have been selected in the past.

Eastman Chemical Company (EMN)

200px-Eastman_Chemical_Company_logo.svgEastman Chemical Company is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the low current ratio, while the Enterprising Investor is only concerned with the level of debt relative to the net current assets.  As a result, all value 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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.07 in 2010 to $5.02 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 3.26% 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)

Mattel Inc. (MAT)

200px-Mattel-brand.svgMattel Inc. qualifies for both the Defensive Investor and the Enterprising Investor after satisfying all of both investor types’ requirements, which is a rare accomplishment.  Neither investor type will have any initial concerns about the financial position of the company.  As a result, all value 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.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.52 in 2010 to $2.03 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 2.7% 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)

Joy Global Inc. (JOY)

2012_JGI_logo_wikipediaJoy Global Inc. is suitable for both the Defensive Investor and the Enterprising Investor.  In fact, the company passes all of the requirements of both investor types, which is a rare accomplishment.  As a result, all value 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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.89 in 2010 to $4.91 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 0.17% 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)

Franklin Resources Inc. (BEN)

Franklin_Resources_LogoFranklin Resources Inc. is suitable for both the Defensive Investor and the Enterprising Investor.  In fact, the company passes all of the requirements of both investor types, which is a rare accomplishment and demonstrates the strength of the company’s financials.  As a result, all value 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.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.23 in 2011 to an estimated $3.42 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 3.73% 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)

Chevron Corporation (CVX)

Chevron passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The only issue the Defensive Investor has with the company is the low current ratio. The Enterprising Investor is concerned with the level of debt relative to the current assets, but is willing to overlook those concerns since the company qualifies for the more conservative Defensive Investor. As a result, all 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, Chevron has grown its EPSmg (normalized earnings) from $8.58 in 2010 to $11.43 for 2014. This level of demonstrated growth is well above the market’s implied estimate for earnings growth of only 0.42% annually over the next 7-10 years. In fact, the historical growth is around 6.63% 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, but still 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)

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.

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