Feature Screens

5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – July 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.

Fossil Group Inc. (FOSL)

220px-Fossil_logo.svgFossil Group performs well in the ModernGraham model and is suitable for both Defensive and Enterprising Investors. Both investor types are only initially concerned by the lack of dividend payments. 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $1.68 in 2011 to an estimated $6.01 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 1.68% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 16% annually, 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 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.  (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 is the short dividend history, while the Enterprising Investor has no initial concerns. 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, NOV has grown its EPSmg (normalized earnings) from $3.88 in 2010 to $5.45 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 0.34% annually over the next 7-10 years. In fact, the historical growth is around 8.11% 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)

Ralph Lauren Corporation (RL)

Ralph_Lauren_Corporation

Ralph Lauren performs well in the ModernGraham model and is suitable for both Defensive and Enterprising Investors. The Defensive Investor is only concerned with the poor PB ratio, while the Enterprising Investor has no initial concerns. As a result, all 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 $4.76 in 2011 to an estimated $7.81 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 4.33% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 9.6% annually, 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 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. (See the full valuation)

Cummins Inc. (CMI)

Logo_cumminsCummins performs well in the ModernGraham model and is suitable for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio while the Enterprising Investor has no initial concerns. 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $5.78 in 2011 to an estimated $8.88 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 3.74% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged over 10.7% annually, 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 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.  (See the full valuation)

Franklin Resources Inc. (BEN)

Franklin_Resources_LogoFranklin Resources performs very well in the ModernGraham model and is suitable for both Defensive and Enterprising Investors. In fact, the company passes all of the requirements of both investor types, which is a rare accomplishment indicative of the company’s strong financial position. 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $2.23 in 2011 to an estimated $3.49 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 3.03% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged over 11% annually, 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 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. (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:  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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