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5 Undervalued Stocks for Value Investors with a High Beta – December 2016

20140530-054905-20945379.jpgThere are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five undervalued companies for value investors reviewed by ModernGraham with the highest beta.

A company’s beta indicates the correlation at which its price moves in relation to the market.  A beta greater than 1 indicates a company is more volatile than the market.

Each company has been determined to be suitable for either the Defensive Investor or the Enterprising 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.

With a high beta, Mr. Market may turn these companies around very quickly, so be sure to check them out in depth!

Lincoln National Corporation (LNC)

Lincoln National Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising 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 $2.04 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.12% 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)

LNC charts May 2016

Seagate Technology PLC (STX)

Seagate Technology PLC is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising 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 $2.39 in 2012 to an estimated $3.74 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.03% 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)

STX charts July 2016

Invesco Ltd. (IVZ)

Invesco Ltd. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 $1.3 in 2012 to an estimated $2.15 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.37% 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)

IVZ charts July 2016

Franklin Resources, Inc. (BEN)

Franklin Resources, 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 $2.5 in 2012 to an estimated $3.2 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.5% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Franklin Resources, Inc. revealed the company was trading above its Graham Number of $35.55. The company pays a dividend of $0.69 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 11.51, which was below the industry average of 19.87, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $14.41.  (See the full valuation)

BEN charts August 2016

Textron Inc. (TXT)

Textron Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising 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 $1.05 in 2012 to an estimated $2.33 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.47% 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)

TXT charts June 2016

What do you think?  Are these companies a good value for Defensive Investors and Enterprising 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 held a long position in Invesco Ltd (IVZ) but did not hold a position in any other 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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