Feature Value Investing Weekly

5 Best Stocks for Value Investors This Week – 2/18/17

I evaluated 28 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. I 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 28 companies, only 5 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors.  Therefore, these companies are the best undervalued stocks of the week.

The Elite

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

Carter’s Inc (CRI)

Carter’s, Inc. 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 poor dividend history, and the high PEmg and PB ratios. 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 $2.26 in 2012 to an estimated $4.14 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.95% 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 Carter’s, Inc. revealed the company was trading above its Graham Number of $41.94. The company pays a dividend of $1.21 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 20.4, which was below the industry average of 22.16, 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 $-2.33.  (See the full valuation)

Snap-on Inc (SNA)

Snap-on Incorporated is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. 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 $4.89 in 2013 to an estimated $8.65 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.7% 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 Snap-on Incorporated revealed the company was trading above its Graham Number of $99.22. The company pays a dividend of $2.54 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 19.9, which was below the industry average of 22.25, 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 $-3.74.  (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:

Simpson Manufacturing Co (SSD)

Simpson Manufacturing Co, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PEmg ratio. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $0.88 in 2013 to an estimated $1.65 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 8.87% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Simpson Manufacturing Co, Inc. revealed the company was trading above its Graham Number of $28.05. The company pays a dividend of $0.7 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 26.23, which was below the industry average of 28.49, 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 $9.87.  (See the full valuation)

SurModics Inc (SRDX)

SurModics, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $0.27 in 2013 to an estimated $0.67 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 13.57% 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 within a margin of safety relative to the price.

At the time of valuation, further research into SurModics, Inc. revealed the company was trading above its Graham Number of $7.51. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 35.64, which was above the industry average of 32.29. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.62.  (See the full valuation)

Texas Instruments Inc (TXN)

Texas Instruments Incorporated is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $1.84 in 2013 to an estimated $3.13 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 7.82% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Texas Instruments Incorporated revealed the company was trading above its Graham Number of $28.78. The company pays a dividend of $1.64 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 24.14, which was below the industry average of 28.12, 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 $1.47.  (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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