This is the third discussion of the ModernGraham Book Club’s reading of Business Adventures: Twelve Classic Tales from the World of Wall Street. This week we are discussing the second chapter of the book, titled “The Fate of the Edsel”.
We evaluated 27 different companies this week to determine whether they are suitable for Defensive Investors, those unwilling to do substantial research, or Enterprising Investors, those who are willing to do such research. We also put each company through the ModernGraham valuation model based on Benjamin Graham’s value investing formulas in order to determine an intrinsic value for each. Out of those 27 companies, only 10 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors.
Cameron International Company qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned by the lack of dividends, and the high PEmg and PB ratios, while the Enterprising Investor is only initially concerned by the lack of dividends.
Brown-Forman Corporation does not qualify for either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios.
Automatic Data Processing Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned by the low current ratio, and the high PEmg and PB ratios, while the Enterprising Investor is only initially concerned by the low current ratio.
While ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself. With that in mind, this article will take a brief look at the best companies of the medical industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.
CF Industries Holdings Inc. qualifies for both the Defensive Investor and for the Enterprising Investor. The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor’s only concern is the level of debt relative to the net current assets.
