Feature Value Investing Weekly

7 Best Stocks For Value Investors This Week – 10/24/15

We evaluated 12 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 12 companies, only 7 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors.

Here’s a summary of those 7 best stocks for value investors this week.

The Elite

The following companies were found to be suitable for either the Defensive Investor or Enterprising Investor and undervalued:

Comerica Inc. (CMA)

Comerica Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor has concerns regarding the insufficient earnings stability or growth over the last ten years while the Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.24 in 2011 to an estimated $2.60 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.94% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Honeywell International Inc. (HON)

Honeywell International Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, and the high PB ratio.  The Enterprising Investor is only initially concerned by the low current ratio.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.68 in 2011 to an estimated $5.10 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.38% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

KKR & Co. LP (KKR)

KKR & Co. LP qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor has concerns regarding the company’s short history as a publicly traded entity while the Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.44 in 2011 to an estimated $1.48 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.57% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Qualcomm Inc. (QCOM)

Qualcomm Inc. qualifies for the both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.94 in 2011 to an estimated $3.69 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.73% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Quanta Services Inc. (PWR)

Quanta Services Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the lack of dividends and the low current ratio.  The Enterprising Investor is only initially concerned by the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.74 in 2011 to an estimated $1.30 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.43% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Valero Energy Corporation (VLO)

Valero Energy Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, and the insufficient earnings growth or stability over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.95 in 2011 to an estimated $6.06 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.71% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

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The Good

The following companies were found to be suitable for the Defensive Investor or Enterprising Investor and Fairly Valued:

Western Digital Corporation (WDC)

Western Digital Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the short dividend history.  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 comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.74 in 2012 to an estimated $5.98 for 2016.  This level of demonstrated earnings growth supports the market’s implied estimate of 1.98% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

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 that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

2 thoughts on “7 Best Stocks For Value Investors This Week – 10/24/15

  1. Please read Value Investing: From Buffet to Graham in Beyond and look at the section about intrinsic value. Value investors calculate intrinsic value based on assets first and foremost, then earnings, and finally growth. Growth is normally assigned a value of zero. Your formula is using growth as the main driver of intrinsic value while taking the assets of a company on a per share basis completely out of the equation. This is so far from what Benjamin Graham taught that it is patently false. You are unintentionally misleading people who visit this site with a dangerous formula that incorrectly calculates intrinsic value.

    1. The formula used for calculating the MG Value comes directly from Benjamin Graham’s book The Intelligent Investor, and is intended to give an estimate of the intrinsic value. It is very important to use a margin of safety in conjunction with the formula as well as treat the estimate as only one of the first parts of an analysis prior to making an investment decision. The formula is not intended to be the all determinative factor but, as Graham put it, “is intended to produce figures fairly close to those resulting from the more refined mathematical calculations.”

      The assets of the company do play a role, as the lower limit of the intrinsic value of the company is the Net Current Asset Value. The intrinsic value of any investment is always either the earnings it generates or the liquidating value of the underlying assets.

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