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10 Most Undervalued Companies for the Defensive Investor – June 2016

10 most undervalued defensiveThere are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the ten most undervalued companies reviewed by ModernGraham. Each company has been determined to be suitable for 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. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

Twenty-First Century Fox Inc (FOXA)

Twenty-First Century Fox Inc qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the insufficient earnings stability over the last ten years, and 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 comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.58 in 2012 to an estimated $2.43 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.09% 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)

Gap Inc (GPS)

Gap Inc qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only initially concerned by the low current ratio 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 comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.59 in 2012 to an estimated $2.44 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.66% 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)

Yahoo! Inc. (YHOO)

Yahoo! Inc. qualifies for both the Enterprising Investor and the more conservative Defensive Investor. Both investor types are only initially concerned with the lack of dividends. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.67 in 2011 to an estimated $2.78 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.69% 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)

Eastman Chemical Company (EMN)

Eastman Chemical Co qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor is only initially concerned by 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 comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.88 in 2011 to an estimated $5.57 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.41% 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)

Principal Financial Group Inc (PFG)

Principal Financial Group Inc qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.13 in 2012 to an estimated $3.73 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.3% 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)

FMC Corp (FMC)

FMC Corporation qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor has no initial concerns, and the Enterprising Investor is only concerned by 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 comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.80 in 2011 to an estimated $3.53 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.74% 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)

Wells Fargo & Co (WFC)

Wells Fargo & Co qualifies for both the Enterprising Investor and the more conservative Defensive 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.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.13 in 2011 to an estimated $3.87 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.64% 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)

Travelers Companies Inc (TRV)

Travelers Companies Inc qualifies for both the Defensive Investor and the Enterprising Investor. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.49 in 2012 to an estimated $9.6 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.52% 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)

PACCAR Inc (PCAR)

Paccar Inc qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the insufficient 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 comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.94 in 2011 to an estimated $3.76 for 2015. This level of demonstrated earnings growth outpaces 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 above the price.  (See the full valuation)

WestRock Co (WRK)

WestRock Co qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor’s only initial concern is 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 comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.97 in 2012 to an estimated $3.28 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.64% 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)

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.

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