10 Companies Benjamin Graham Would Invest In Today – April 2015

Out of the multitude of companies, which ones would legendary value investor Benjamin Graham buy today?  I’ve compiled ten great companies that fit the ModernGraham criteria, based on Benjamin Graham’s methods. The companies in this list pass the rigorous requirements of either the Defensive Investor or the Enterprising Investor and are undervalued by the market. To find more companies that meet these tests, be sure to check out the ModernGraham Valuation Index.

Capital One Financial (COF)

Capital One Financial 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 $3.20 in 2010 to $6.93 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.35% 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)

CF Industries Holdings Inc. (CF)

CF Industries Holdings Inc. 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 lack of earnings stability over the last ten years, while the Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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, the company has grown its EPSmg (normalized earnings) from $7.10 in 2010 to $24.63 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 1.73% annually over the next 7-10 years. In fact, the historical growth is nearly 50% 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.  (Read 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 $0.01 in 2010 to $1.62 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.53% 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)

Ford Motor Company (F)

Ford Motor Company does fairly well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the inconsistent dividend history and lack of earnings stability over the last ten years, while the Enterprising Investor has no initial concerns. As a result, Enterprising 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from a loss of $1.15 in 2010 to a gain of $1.79 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of only 0.33% annual earnings growth over the next 7-10 years. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.  (Read the full valuation on Seeking Alpha)

Helmerich & Payne Inc. (HP)

Helmerich & Payne Inc. is suitable for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned by the low level of earnings growth over the last ten years, while the Enterprising Investor has no initial concerns.  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 $3.24 in 2011 to an estimated $4.63 for 2014.  This level of demonstrated growth is greater than 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.  (Read the full valuation)

People’s United Financial Inc. (PBCT)

People’s United Financial Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the high PEmg ratio, 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 $0.34 in 2010 to $0.71 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 6.23% 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)

Seagate Technology Inc. (STX)

Seagate Technology does fairly well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the inconsistent dividend history, lack of earnings stability over the last ten years, and the high PB ratio, while the Enterprising Investor has no initial concerns. As a result, Enterprising 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $0.34 in 2011 to an estimated $4.68 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of only 2.27% annual earnings growth over the next 7-10 years. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.  (Read the full valuation on Seeking Alpha)

Valero Energy Corporation (VLO)

Valero Energy performs well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the low current ratio as well as the insufficient earnings growth or stability over the last ten years, while the Enterprising Investor has no initial concerns. As a result, Enterprising 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $0.54 in 2010 to $4.89 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 1.75% annual earnings growth over the next 7-10 years. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.  (Read the full valuation)

Visa Inc. (V)

Visa Inc. should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio, short history as a publicly traded company, and the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns. Therefore, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $3.49 in 2011 to an estimated $7.95 for 2015. This is a strong and impressive level of demonstrated growth, which is in line with the market’s implied estimate for earnings growth of 12.93% over the next 7-10 years. The ModernGraham valuation model, therefore, returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time.  (Read the full valuation on Seeking Alpha)

Yahoo! Inc. (YHOO)

Yahoo Inc. passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The only issue for both investor types is the lack of dividends. 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, Yahoo Inc. has grown its EPSmg (normalized earnings) from $0.57 in 2010 to $3.64 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 1.73% over the next 7-10 years. 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.  (Read the full valuation on Seeking Alpha)

Disclaimer:  The author held a long position in Ford Motor Company (F) but did not hold a position in any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logos taken from the Wikipedia or the individual company’s website; this article is not affiliated with the company in any manner.