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Celestica Inc Valuation – Initial Coverage $TSE:CLS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Celestica Inc (TSE:CLS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Celestica Inc. is a provider of supply chain solutions in the communications, consumer, diversified, servers and storage end markets. The Company operates in electronics manufacturing services business segment. The Company offers a range of services to its customers, including design and development, engineering services, supply chain management, new product introduction, component sourcing, electronics manufacturing, assembly and test, complex mechanical assembly, systems integration, precision machining, order fulfillment, logistics and after-market repair and return services. Its products and services serve a range of applications, including servers; storage systems; optical equipment; aerospace and defense electronics; healthcare products and applications; semiconductor equipment, and a range of industrial and alternative energy products, including solar panels and inverters. It designs, manufactures and tests solar panels for the residential, commercial and utility scale markets.

CLS Chart

CLS data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CLS – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,968,662,816 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.88 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -180.36% Fail
6. Moderate PEmg Ratio PEmg < 20 16.51 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.46 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.88 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.98
MG Growth Estimate 15.00%
MG Value $37.85
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $14.25
MG Value based on 0% Growth $8.36
Market Implied Growth Rate 4.00%
Current Price $16.23
% of Intrinsic Value 42.88%

Celestica Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, 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 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 Undervalued after growing its EPSmg (normalized earnings) from $0.29 in 2012 to an estimated $0.98 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4% 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 Celestica Inc revealed the company was trading below its Graham Number of $20.71. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 16.51, 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 $6.81.

Celestica Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $6.81
Graham Number $20.71
PEmg 16.51
Current Ratio 1.88
PB Ratio 1.46
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $3,074,322,000
Total Current Liabilities $1,636,650,000
Long-Term Debt $0
Total Assets $3,688,164,000
Intangible Assets $60,034,000
Total Liabilities $2,100,406,000
Shares Outstanding (Diluted Average) 143,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.69
Dec2015 $0.58
Dec2014 $0.69
Dec2013 $0.68
Dec2012 $0.55
Dec2011 $0.90
Dec2010 $0.44
Dec2009 $0.25
Dec2008 -$3.87
Dec2007 -$0.06
Dec2006 -$0.76
Dec2005 -$0.24
Dec2004 -$4.69
Dec2003 -$1.62
Dec2002 -$3.09
Dec2001 -$0.41
Dec2000 $1.51
Dec1999 $0.59
Dec1998 -$0.82
Dec1997 -$0.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.98
Dec2015 $0.65
Dec2014 $0.67
Dec2013 $0.63
Dec2012 $0.29
Dec2011 -$0.05
Dec2010 -$0.62
Dec2009 -$1.08
Dec2008 -$1.80
Dec2007 -$1.01
Dec2006 -$1.68
Dec2005 -$2.09
Dec2004 -$2.57
Dec2003 -$1.20
Dec2002 -$0.81
Dec2001 $0.26
Dec2000 $0.48

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Advanced Micro Devices Inc Valuation – January 2017 $AMD
IPG Photonics Corp Valuation – Initial Coverage $IPGP
Ciena Corporation Valuation – Initial Coverage $CIEN
ScanSource Inc Valuation – Initial Coverage $SCSC
Cognex Corporation Valuation – Initial Coverage $CGNX
AMETEK Inc Valuation – December 2016 $AME
Ingram Micro Inc Valuation – Initial Coverage $IM
Sanmina Corp Valuation – Initial Coverage $SANM
Qorvo Inc Valuation – December 2016 Update $QRVO
IIVI Inc Valuation – Initial Coverage $IIVI

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.

Celestica Inc Valuation – July 2018 $TSE-CLS

Company Profile (excerpt from Reuters): Celestica Inc., incorporated on September 27, 1996, is a provider of supply chain solutions. The Company operates in electronics manufacturing services business segment. The Company offers a range of services, including design and development, engineering services, supply chain management, new product introduction, component sourcing, electronics manufacturing, assembly and test, complex mechanical assembly, systems integration, precision machining, order fulfillment, logistics and after-market repair and return services. The Company’s products and services serve a range of applications, including servers; networking and telecommunications equipment; storage systems; optical equipment; aerospace and defense electronics; healthcare products and applications; semiconductor equipment, and a range of industrial and alternative energy products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CLS – July 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,199,285,000 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.91 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 131.29% Pass
6. Moderate PEmg Ratio PEmg < 20 13.63 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.25 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.91 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.14 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.12
MG Growth Estimate 10.08%
MG Value $32.23
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $16.31
MG Value based on 0% Growth $9.56
Market Implied Growth Rate 2.56%
Current Price $15.33
% of Intrinsic Value 47.57%

Celestica Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $0.67 in 2014 to an estimated $1.12 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.56% 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 Celestica Inc revealed the company was trading below its Graham Number of $20.33. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 13.63, which was below the industry average of 53.59, 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 $7.81.

Celestica Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $7.81
Graham Number $20.33
PEmg 13.63
Current Ratio 1.91
PB Ratio 1.25
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $3,216,115,000
Total Current Liabilities $1,687,662,000
Long-Term Debt $207,320,000
Total Assets $3,848,939,000
Intangible Assets $57,036,000
Total Liabilities $2,095,577,000
Shares Outstanding (Diluted Average) 143,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.51
Dec2017 $0.92
Dec2016 $1.27
Dec2015 $0.58
Dec2014 $0.69
Dec2013 $0.68
Dec2012 $0.55
Dec2011 $0.90
Dec2010 $0.44
Dec2009 $0.25
Dec2008 -$3.87
Dec2007 -$0.06
Dec2006 -$0.76
Dec2005 -$0.24
Dec2004 -$4.69
Dec2003 -$1.62
Dec2002 -$3.09
Dec2001 -$0.41
Dec2000 $1.51
Dec1999 $0.59
Dec1998 -$0.82

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.12
Dec2017 $0.90
Dec2016 $0.84
Dec2015 $0.65
Dec2014 $0.67
Dec2013 $0.63
Dec2012 $0.29
Dec2011 -$0.05
Dec2010 -$0.62
Dec2009 -$1.08
Dec2008 -$1.80
Dec2007 -$1.01
Dec2006 -$1.68
Dec2005 -$2.09
Dec2004 -$2.57
Dec2003 -$1.20
Dec2002 -$0.81

Recommended Reading:

Other ModernGraham posts about the company

Best Stocks Below Their Graham Number – August 2017
5 Undervalued Canadian Stocks for Intelligent Investors – February 2017
15 Best Stocks for Value Investors This Week – 1/14/17
Celestica Inc Valuation – Initial Coverage $TSE:CLS

Other ModernGraham posts about related companies

Ciena Corp Valuation – July 2018 $CIEN
iRobot Corp Valuation – July 2018 $IRBT
ScanSource Inc Valuation – July 2018 $SCSC
Cognex Corp Valuation – July 2018 $CGNX
Sanmina Corp Valuation – July 2018 $SANM
II-VI Inc Valuation – July 2018 $IIVI
CEVA Inc Valuation – July 2018 $CEVA
MTS Systems Corp Valuation – June 2018 $MTSC
Jabil Inc Valuation – June 2018 $JBL
Arrow Electronics Inc Valuation – June 2018 $ARW

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.

Best Stocks Below Their Graham Number – August 2017

Graham Number Stocks

One popular approach to investing based on Benjamin Graham’s methods is to use the so-called “Graham Number.”  There are some important differences between the Graham Number and the Graham Formula, but using the Graham Number is definitely useful even if the investor only uses it as a screening tactic.

I’ve selected the best companies reviewed by ModernGraham which trade below their Graham Number.  The companies selected all are found suitable for the Defensive Investor and/or the Enterprising Investor, and have been valued as undervalued based on the ModernGraham valuation model.  Further, the overall screen found 36 companies meeting these criteria (out of the 897+ companies covered by ModernGraham), and the full list can be found near the end of this article; however, to cut down on the length of the post, I’ve selected the ten which trade furthest below their Graham Number.

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.

These companies have demonstrated strong financial positions through passing the rigorous requirements of the ModernGraham Investor and show potential for capital growth based on their current price in relation to intrinsic value.  As such, these graham number stocks may be a great investment if they prove to be suitable for your portfolio after your own additional research.

Capital One Financial Corp. (COF)

Capital One Financial Corp. 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 $5.15 in 2012 to an estimated $7.13 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.05% 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)

COF charts July 2016

Celestica Inc (TSE:CLS)

Celestica Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, 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 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 Undervalued after growing its EPSmg (normalized earnings) from $0.29 in 2012 to an estimated $0.98 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4% 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 Celestica Inc revealed the company was trading below its Graham Number of $20.71. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 16.51, 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 $6.81.  (See the full valuation)

Foot Locker, Inc. (FL)

Foot Locker, 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, and the 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 $2.16 in 2014 to an estimated $4.47 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.23% 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 Foot Locker, Inc. revealed the company was trading above its Graham Number of $48.72. The company pays a dividend of $1.1 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 16.96, which was below the industry average of 50.09, 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 $11.28.  (See the full valuation)

Kelly Services, Inc. (KELYA)

Kelly Services, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 $1.1 in 2013 to an estimated $1.8 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.74% 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 Kelly Services, Inc. revealed the company was trading below its Graham Number of $30.13. The company pays a dividend of $0.28 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 11.99, which was below the industry average of 21.9, 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 $5.19.  (See the full valuation)

Signet Jewelers Ltd. (SIG)

Signet Jewelers Ltd. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 $2.84 in 2013 to an estimated $5.77 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.39% 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 Signet Jewelers Ltd. revealed the company was trading above its Graham Number of $71.41. The company pays a dividend of $1 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 15.29, which was below the industry average of 26.36, 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 $4.06.  (See the full valuation)

Starwood Property Trust, Inc. (STWD)

Starwood Property Trust, 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, and the poor dividend history. 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 $1.5 in 2013 to an estimated $1.87 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 1.84% 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.

At the time of valuation, further research into Starwood Property Trust, Inc. revealed the company was trading below its Graham Number of $29.28. The company pays a dividend of $1.92 per share, for a yield of 8.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.17, which was below the industry average of 51.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

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

Canadian Western Bank (TSE:CWB)

Canadian Western Bank 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 $2.14 in 2013 to an estimated $2.69 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.1% 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.

At the time of valuation, further research into Canadian Western Bank revealed the company was trading below its Graham Number of $36.05. The company pays a dividend of $0.92 per share, for a yield of 3.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.7, which was below the industry average of 21.43, which by some methods of valuation makes it one of the most undervalued stocks in its industry.    (See the full valuation)

Citigroup Inc (C)

Citigroup Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 $-2.31 in 2012 to an estimated $4.1 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.16% 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)

C charts July 2016

Linamar Corporation (TSE:LNR)

 

Linamar Corporation 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 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 $2.22 in 2013 to an estimated $6.93 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.1% 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 Linamar Corporation revealed the company was trading below its Graham Number of $83.15. The company pays a dividend of $0.4 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 8.7, which was below the industry average of 18.47, 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 $-7.49.  (See the full valuation)

 

The Full List

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Clicking on the company name will take you to the company’s latest valuation.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield Graham Number
AFL AFLAC Incorporated D 12/19/2016 $112.32 $79.84 71.08% 12.84 2.05% $87.98
AHL Aspen Insurance Holdings Limited E 12/13/2016 $173.48 $46.75 26.95% 10.37 1.84% $82.44
ARW Arrow Electronics, Inc. E 7/3/2016 $124.11 $74.23 59.81% 14.11 0.00% $81.27
ASH Ashland Global Holdings Inc. E 7/27/2016 $161.82 $60.98 37.68% 12.65 2.56% $73.88
BAC Bank of America Corp E 7/14/2016 $35.60 $23.62 66.35% 25.67 0.85% $23.92
BBBY Bed Bath & Beyond Inc. D 6/14/2016 $93.73 $27.27 29.09% 5.55 0.00% $41.96
C Citigroup Inc E 7/19/2016 $157.95 $66.58 42.15% 16.24 0.30% $85.07
CNO CNO Financial Group Inc E 1/28/2017 $42.30 $22.31 52.74% 20.28 1.34% $24.73
COF Capital One Financial Corp. E 7/6/2016 $142.36 $81.53 57.27% 11.43 1.96% $122.14
CVG Convergys Corp E 3/18/2017 $45.02 $22.92 50.91% 15.38 1.53% $23.70
DFS Discover Financial Services D 1/28/2017 $109.91 $59.43 54.07% 10.81 1.95% $62.08
FL Foot Locker, Inc. E 3/6/2017 $172.17 $34.38 19.97% 7.69 3.20% $48.72
KBH KB Home E 2/4/2017 $84.55 $22.21 26.27% 10.10 0.45% $25.21
KELYA Kelly Services, Inc. E 2/7/2017 $50.08 $21.37 42.67% 11.87 1.31% $30.13
LNC Lincoln National Corporation E 5/20/2016 $198.66 $68.02 34.24% 13.18 1.62% $89.07
MET Metlife Inc E 12/13/2016 $119.73 $47.02 39.27% 11.64 3.30% $78.35
NAVI Navient Corp E 8/31/2016 $92.14 $13.60 14.76% 5.69 4.71% $21.98
PBCT People’s United Financial, Inc. D 6/20/2016 $22.89 $16.63 72.65% 20.04 4.03% $17.28
RF Regions Financial Corp E 6/27/2016 $29.52 $14.06 47.63% 18.26 1.71% $14.93
SANM Sanmina Corp E 12/5/2016 $106.05 $35.20 33.19% 12.80 0.00% $36.05
SENEA Seneca Foods Corp E 12/22/2016 $69.62 $28.90 41.51% 10.63 0.00% $69.20
SIG Signet Jewelers Ltd. E 1/9/2017 $222.15 $53.59 24.12% 9.29 1.87% $71.41
SPOK Spok Holdings, Inc. E 2/9/2017 $54.43 $16.25 29.85% 5.74 3.08% $38.13
STI SunTrust Banks, Inc. E 4/11/2017 $135.29 $56.13 41.49% 15.99 1.78% $61.96
STWD Starwood Property Trust, Inc. E 4/11/2017 $29.84 $22.08 73.99% 11.81 8.70% $29.28
SUP Superior Industries International Inc E 3/7/2017 $19.90 $14.35 72.11% 10.79 5.02% $25.53
SYF Synchrony Financial E 3/2/2017 $75.28 $30.07 39.94% 10.74 0.86% $34.07
SYKE Sykes Enterprises, Incorporated E 3/20/2017 $62.24 $26.14 42.00% 16.14 0.00% $27.43
TCF TCF Financial Corporation E 3/26/2017 $41.61 $14.93 35.88% 13.82 2.01% $18.02
TRV Travelers Companies Inc D 12/1/2016 $320.65 $127.89 39.88% 12.96 1.52% $134.38
TSE:CLS Celestica Inc E 1/11/2017 $37.85 $14.38 37.99% 14.67 0.00% $20.71
TSE:CM Canadian Imperial Bank of Commerce E 1/12/2017 $185.80 $106.94 57.56% 11.12 4.44% $114.08
TSE:CWB Canadian Western Bank D 3/25/2017 $43.69 $28.00 64.09% 10.41 3.29% $36.05
TSE:LNR Linamar Corporation E 3/26/2017 $266.91 $67.67 25.35% 9.76 0.59% $83.15
TSE:TD Toronto-Dominion Bank D 4/11/2017 $103.85 $63.73 61.37% 13.79 3.45% $65.31
URBN Urban Outfitters, Inc. D 7/19/2016 $27.71 $19.27 69.54% 10.89 0.00% $20.09

[/not-level-free][level-free]

To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield Graham Number
AFL AFLAC Incorporated D 12/19/2016 $79.84 2.05% $87.98
AHL Aspen Insurance Holdings Limited E 12/13/2016 $46.75 1.84% $82.44
ARW Arrow Electronics, Inc. E 7/3/2016 $74.23 0.00% $81.27
ASH Ashland Global Holdings Inc. E 7/27/2016 $60.98 2.56% $73.88
BAC Bank of America Corp E 7/14/2016 $23.62 0.85% $23.92
BBBY Bed Bath & Beyond Inc. D 6/14/2016 $27.27 0.00% $41.96
C Citigroup Inc E 7/19/2016 $66.58 0.30% $85.07
CNO CNO Financial Group Inc E 1/28/2017 $22.31 1.34% $24.73
COF Capital One Financial Corp. E 7/6/2016 $81.53 1.96% $122.14
CVG Convergys Corp E 3/18/2017 $22.92 1.53% $23.70
DFS Discover Financial Services D 1/28/2017 $59.43 1.95% $62.08
FL Foot Locker, Inc. E 3/6/2017 $34.38 3.20% $48.72
KBH KB Home E 2/4/2017 $22.21 0.45% $25.21
KELYA Kelly Services, Inc. E 2/7/2017 $21.37 1.31% $30.13
LNC Lincoln National Corporation E 5/20/2016 $68.02 1.62% $89.07
MET Metlife Inc E 12/13/2016 $47.02 3.30% $78.35
NAVI Navient Corp E 8/31/2016 $13.60 4.71% $21.98
PBCT People’s United Financial, Inc. D 6/20/2016 $16.63 4.03% $17.28
RF Regions Financial Corp E 6/27/2016 $14.06 1.71% $14.93
SANM Sanmina Corp E 12/5/2016 $35.20 0.00% $36.05
SENEA Seneca Foods Corp E 12/22/2016 $28.90 0.00% $69.20
SIG Signet Jewelers Ltd. E 1/9/2017 $53.59 1.87% $71.41
SPOK Spok Holdings, Inc. E 2/9/2017 $16.25 3.08% $38.13
STI SunTrust Banks, Inc. E 4/11/2017 $56.13 1.78% $61.96
STWD Starwood Property Trust, Inc. E 4/11/2017 $22.08 8.70% $29.28
SUP Superior Industries International Inc E 3/7/2017 $14.35 5.02% $25.53
SYF Synchrony Financial E 3/2/2017 $30.07 0.86% $34.07
SYKE Sykes Enterprises, Incorporated E 3/20/2017 $26.14 0.00% $27.43
TCF TCF Financial Corporation E 3/26/2017 $14.93 2.01% $18.02
TRV Travelers Companies Inc D 12/1/2016 $127.89 1.52% $134.38
TSE:CLS Celestica Inc E 1/11/2017 $14.38 0.00% $20.71
TSE:CM Canadian Imperial Bank of Commerce E 1/12/2017 $106.94 4.44% $114.08
TSE:CWB Canadian Western Bank D 3/25/2017 $28.00 3.29% $36.05
TSE:LNR Linamar Corporation E 3/26/2017 $67.67 0.59% $83.15
TSE:TD Toronto-Dominion Bank D 4/11/2017 $63.73 3.45% $65.31
URBN Urban Outfitters, Inc. D 7/19/2016 $19.27 0.00% $20.09

[/level-free]

Disclaimer: 

The author held a long position in Starwood Property Trust (STWD) but did not hold a position in any other company mentioned in this article at the time of publication and had no specific intention of changing that position within the next 72 hours; however, the author does intend to make some trades in the next 72 hours and may select a company from this list.  See my current holdings here.  This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions.  Please also read our full disclaimer.

Best Stocks Below Their Graham Number – March 2017

Graham Number Stocks

One popular approach to investing based on Benjamin Graham’s methods is to use the so-called “Graham Number.”  There are some important differences between the Graham Number and the Graham Formula, but using the Graham Number is definitely useful even if the investor only uses it as a screening tactic.

I’ve selected the best companies reviewed by ModernGraham which trade below their Graham Number.  The companies selected all are found suitable for the Defensive Investor and/or the Enterprising Investor, and have been valued as undervalued based on the ModernGraham valuation model.  Further, the overall screen found 33 companies meeting these criteria (out of the 850+ companies covered by ModernGraham), and the full list can be found near the end of this article; however, to cut down on the length of the post, I’ve selected the ten which trade furthest below their Graham Number.

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.

These companies have demonstrated strong financial positions through passing the rigorous requirements of the ModernGraham Investor and show potential for capital growth based on their current price in relation to intrinsic value.  As such, these graham number stocks may be a great investment if they prove to be suitable for your portfolio after your own additional research.

Navient Corp (NAVI)

Navient Corp 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, and the poor dividend history. 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 $0.63 in 2012 to an estimated $2.39 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.25% annual earnings loss 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.

At the time of valuation, further research into Navient Corp revealed the company was trading below its Graham Number of $21.98. The company pays a dividend of $0.64 per share, for a yield of 4.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 6.01, 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.  (See the full valuation)

NAVI charts August 2016

Linamar Corporation (TSE:LNR)

Linamar Corporation 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 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 $2.22 in 2013 to an estimated $6.93 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.1% 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 Linamar Corporation revealed the company was trading below its Graham Number of $83.15. The company pays a dividend of $0.4 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 8.7, which was below the industry average of 18.47, 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 $-7.49.  (See the full valuation)

KB Home (KBH)

KB Home 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 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 $-0.72 in 2013 to an estimated $2.2 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.52% annual earnings loss 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 KB Home revealed the company was trading below its Graham Number of $25.21. The company pays a dividend of $0.1 per share, for a yield of 0.6% Its PEmg (price over earnings per share – ModernGraham) was 7.47, 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 $8.5.  (See the full valuation)

Aspen Insurance Holdings Limited (AHL)

Aspen Insurance Holdings Limited is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth 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 $2.19 in 2012 to an estimated $4.51 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.7% 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.

At the time of valuation, further research into Aspen Insurance Holdings Limited revealed the company was trading below its Graham Number of $82.44. The company pays a dividend of $0.86 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 11.91, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

LGI Homes Inc (LGIH)

LGI Homes 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 over the last ten years, and the poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $0.39 in 2013 to an estimated $2.76 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.6% 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 LGI Homes Inc revealed the company was trading below its Graham Number of $36.13. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 11.7, 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 $15.24.  (See the full valuation)

Signet Jewelers Ltd. (SIG)

Signet Jewelers Ltd. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 $2.84 in 2013 to an estimated $5.77 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.39% 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 Signet Jewelers Ltd. revealed the company was trading above its Graham Number of $71.41. The company pays a dividend of $1 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 15.29, which was below the industry average of 26.36, 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 $4.06.  (See the full valuation)

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

Spok Holdings, Inc. (SPOK)

Spok Holdings, 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, and the poor dividend history. 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 $2.08 in 2012 to an estimated $2.83 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.96% annual earnings loss 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 Spok Holdings, Inc. revealed the company was trading below its Graham Number of $38.13. The company pays a dividend of $0.5 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 6.58, which was below the industry average of 68.5, 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 $4.56.  (See the full valuation)

Fifth Third Bancorp (FITB)

Fifth Third Bancorp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth 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 $0.82 in 2012 to an estimated $1.74 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.75% 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)

FITB charts July 2016

Citigroup Inc (C)

Citigroup Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 $-2.31 in 2012 to an estimated $4.1 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.16% 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)

C charts July 2016

The Full List

[not-level-free]
Clicking on the company name will take you to the company’s latest valuation.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield Graham Number
AFL AFLAC Incorporated D 12/19/2016 $112.32 $71.84 63.96% 11.55 2.28% $87.98
AHL Aspen Insurance Holdings Limited E 12/13/2016 $173.48 $52.10 30.03% 11.55 1.65% $82.44
ARW Arrow Electronics, Inc. E 7/3/2016 $124.11 $72.75 58.62% 13.83 0.00% $81.27
BAC Bank of America Corp E 7/14/2016 $35.60 $23.03 64.69% 25.03 0.87% $23.92
BAX Baxter International Inc D 1/28/2017 $111.31 $51.83 46.56% 10.04 0.95% $56.96
BBBY Bed Bath & Beyond Inc. D 6/14/2016 $93.73 $38.32 40.88% 7.80 0.00% $41.96
BK Bank of New York Mellon Corp E 1/7/2017 $77.99 $46.25 59.30% 18.21 1.51% $48.91
C Citigroup Inc E 7/19/2016 $157.95 $58.33 36.93% 14.23 0.34% $85.07
CNO CNO Financial Group Inc E 1/28/2017 $42.30 $20.21 47.78% 18.37 1.48% $24.73
COF Capital One Financial Corp. E 7/6/2016 $142.36 $82.13 57.69% 11.52 1.95% $122.14
CVG Convergys Corp E 3/18/2017 $45.02 $20.71 46.00% 13.90 1.69% $23.70
FITB Fifth Third Bancorp E 7/2/2016 $67.04 $24.73 36.89% 14.21 2.10% $25.45
IVZ Invesco Ltd. D 7/24/2016 $60.45 $30.00 49.63% 13.95 3.60% $30.20
JNS Janus Capital Group Inc E 2/2/2017 $30.95 $12.66 40.90% 15.83 3.32% $13.50
KBH KB Home E 2/4/2017 $84.55 $19.36 22.90% 8.80 0.52% $25.21
KELYA Kelly Services, Inc. E 2/7/2017 $50.08 $21.26 42.45% 11.81 1.32% $30.13
LGIH LGI Homes Inc E 3/11/2017 $106.16 $32.56 30.67% 11.80 0.00% $36.13
LNC Lincoln National Corporation E 5/20/2016 $198.66 $63.47 31.95% 12.30 1.73% $89.07
MET Metlife Inc E 12/13/2016 $119.73 $51.69 43.17% 12.79 3.00% $78.35
NAVI Navient Corp E 8/31/2016 $92.14 $14.00 15.19% 5.86 4.57% $21.98
RF Regions Financial Corp E 6/27/2016 $29.52 $14.08 47.70% 18.29 1.70% $14.93
SENEA Seneca Foods Corp E 12/22/2016 $69.62 $35.05 50.34% 12.89 0.00% $69.20
SIG Signet Jewelers Ltd. E 1/9/2017 $222.15 $69.66 31.36% 12.07 1.44% $71.41
SPOK Spok Holdings, Inc. E 2/9/2017 $54.43 $18.75 34.45% 6.63 2.67% $38.13
STBA S & T Bancorp Inc E 2/23/2017 $48.34 $33.54 69.38% 16.52 2.30% $34.16
STI SunTrust Banks, Inc. E 8/25/2016 $126.84 $54.34 42.84% 16.52 1.77% $59.54
STWD Starwood Property Trust, Inc. E 8/25/2016 $57.61 $22.87 39.70% 11.55 8.40% $27.64
SYF Synchrony Financial E 3/2/2017 $75.28 $32.74 43.49% 11.69 0.79% $34.07
TCB TCF Financial Corporation E 3/26/2017 $41.61 $15.83 38.04% 14.66 1.90% $18.02
TRV Travelers Companies Inc D 12/1/2016 $320.65 $121.01 37.74% 12.26 1.61% $134.38
TSE:CLS Celestica Inc E 1/11/2017 $37.85 $18.98 50.15% 19.37 0.00% $20.71
TSE:CWB Canadian Western Bank D 3/25/2017 $43.69 $28.99 66.35% 10.78 3.17% $36.05
TSE:LNR Linamar Corporation E 3/26/2017 $266.91 $61.10 22.89% 8.82 0.65% $83.15

[/not-level-free][level-free]

To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield Graham Number
AFL AFLAC Incorporated D 12/19/2016 $71.84 2.28% $87.98
AHL Aspen Insurance Holdings Limited E 12/13/2016 $52.10 1.65% $82.44
ARW Arrow Electronics, Inc. E 7/3/2016 $72.75 0.00% $81.27
BAC Bank of America Corp E 7/14/2016 $23.03 0.87% $23.92
BAX Baxter International Inc D 1/28/2017 $51.83 0.95% $56.96
BBBY Bed Bath & Beyond Inc. D 6/14/2016 $38.32 0.00% $41.96
BK Bank of New York Mellon Corp E 1/7/2017 $46.25 1.51% $48.91
C Citigroup Inc E 7/19/2016 $58.33 0.34% $85.07
CNO CNO Financial Group Inc E 1/28/2017 $20.21 1.48% $24.73
COF Capital One Financial Corp. E 7/6/2016 $82.13 1.95% $122.14
CVG Convergys Corp E 3/18/2017 $20.71 1.69% $23.70
FITB Fifth Third Bancorp E 7/2/2016 $24.73 2.10% $25.45
IVZ Invesco Ltd. D 7/24/2016 $30.00 3.60% $30.20
JNS Janus Capital Group Inc E 2/2/2017 $12.66 3.32% $13.50
KBH KB Home E 2/4/2017 $19.36 0.52% $25.21
KELYA Kelly Services, Inc. E 2/7/2017 $21.26 1.32% $30.13
LGIH LGI Homes Inc E 3/11/2017 $32.56 0.00% $36.13
LNC Lincoln National Corporation E 5/20/2016 $63.47 1.73% $89.07
MET Metlife Inc E 12/13/2016 $51.69 3.00% $78.35
NAVI Navient Corp E 8/31/2016 $14.00 4.57% $21.98
RF Regions Financial Corp E 6/27/2016 $14.08 1.70% $14.93
SENEA Seneca Foods Corp E 12/22/2016 $35.05 0.00% $69.20
SIG Signet Jewelers Ltd. E 1/9/2017 $69.66 1.44% $71.41
SPOK Spok Holdings, Inc. E 2/9/2017 $18.75 2.67% $38.13
STBA S & T Bancorp Inc E 2/23/2017 $33.54 2.30% $34.16
STI SunTrust Banks, Inc. E 8/25/2016 $54.34 1.77% $59.54
STWD Starwood Property Trust, Inc. E 8/25/2016 $22.87 8.40% $27.64
SYF Synchrony Financial E 3/2/2017 $32.74 0.79% $34.07
TCB TCF Financial Corporation E 3/26/2017 $15.83 1.90% $18.02
TRV Travelers Companies Inc D 12/1/2016 $121.01 1.61% $134.38
TSE:CLS Celestica Inc E 1/11/2017 $18.98 0.00% $20.71
TSE:CWB Canadian Western Bank D 3/25/2017 $28.99 3.17% $36.05
TSE:LNR Linamar Corporation E 3/26/2017 $61.10 0.65% $83.15

[/level-free]

Disclaimer: 

The author held a long position in Invesco Ltd (IVZ) and Starwood Property Trust (STWD) but did not hold a position in any other company mentioned in this article at the time of publication and had no specific intention of changing that position within the next 72 hours; however, the author does intend to make some trades in the next 72 hours and may select a company from this list.  See my current holdings here.  This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions.  Please also read our full disclaimer.

Best Stocks Below Their Graham Number – February 2017

Graham Number Stocks

One popular approach to investing based on Benjamin Graham’s methods is to use the so-called “Graham Number.”  There are some important differences between the Graham Number and the Graham Formula, but using the Graham Number is definitely useful even if the investor only uses it as a screening tactic.

I’ve selected the best companies reviewed by ModernGraham which trade below their Graham Number.  The companies selected all are found suitable for the Defensive Investor and/or the Enterprising Investor, and have been valued as undervalued based on the ModernGraham valuation model.  Further, the overall screen found 28 companies meeting these criteria (out of the 745+ companies covered by ModernGraham), and the full list can be found near the end of this article; however, to cut down on the length of the post, I’ve selected the ten which trade furthest below their Graham Number.

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.

These companies have demonstrated strong financial positions through passing the rigorous requirements of the ModernGraham Investor and show potential for capital growth based on their current price in relation to intrinsic value.  As such, these graham number stocks may be a great investment if they prove to be suitable for your portfolio after your own additional research.

Spok Holdings, Inc. (SPOK)

Spok Holdings, 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, and the poor dividend history. 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 $2.08 in 2012 to an estimated $2.83 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.96% annual earnings loss 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 Spok Holdings, Inc. revealed the company was trading below its Graham Number of $38.13. The company pays a dividend of $0.5 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 6.58, which was below the industry average of 68.5, 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 $4.56.  (See the full valuation)

Seneca Foods Corp (SENEA)

Seneca Foods Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $1.73 in 2012 to an estimated $2.72 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.19% 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 Seneca Foods Corp revealed the company was trading below its Graham Number of $69.2. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 14.87, which was below the industry average of 24.74, 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 $16.89.  (See the full valuation)

KB Home (KBH)

KB Home 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 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 $-0.72 in 2013 to an estimated $2.2 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.52% annual earnings loss 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 KB Home revealed the company was trading below its Graham Number of $25.21. The company pays a dividend of $0.1 per share, for a yield of 0.6% Its PEmg (price over earnings per share – ModernGraham) was 7.47, 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 $8.5.  (See the full valuation)

Metlife Inc (MET)

Metlife 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 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 $2.37 in 2012 to an estimated $4.04 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.75% 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.

At the time of valuation, further research into Metlife Inc revealed the company was trading below its Graham Number of $78.35. The company pays a dividend of $1.55 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.01, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

Aspen Insurance Holdings Limited (AHL)

Aspen Insurance Holdings Limited is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth 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 $2.19 in 2012 to an estimated $4.51 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.7% 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.

At the time of valuation, further research into Aspen Insurance Holdings Limited revealed the company was trading below its Graham Number of $82.44. The company pays a dividend of $0.86 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 11.91, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

Equity Residential (EQR)

Equity Residential 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 $2.15 in 2012 to an estimated $5.79 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.39% 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 Equity Residential revealed the company was trading below its Graham Number of $90.07. The company pays a dividend of $2.11 per share, for a yield of 3.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.29, which was below the industry average of 34.03, 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 $-24.85.  (See the full valuation)

Navient Corp (NAVI)

Navient Corp 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, and the poor dividend history. 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 $0.63 in 2012 to an estimated $2.39 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.25% annual earnings loss 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.

At the time of valuation, further research into Navient Corp revealed the company was trading below its Graham Number of $21.98. The company pays a dividend of $0.64 per share, for a yield of 4.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 6.01, 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.  (See the full valuation)

NAVI charts August 2016

Citigroup Inc (C)

Citigroup Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 $-2.31 in 2012 to an estimated $4.1 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.16% 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)

C charts July 2016

Kelly Services, Inc. (KELYA)

Kelly Services, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 $1.1 in 2013 to an estimated $1.8 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.74% 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 Kelly Services, Inc. revealed the company was trading below its Graham Number of $30.13. The company pays a dividend of $0.28 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 11.99, which was below the industry average of 21.9, 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 $5.19.  (See the full valuation)

Fossil Group Inc (FOSL)

Fossil Group Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $4.26 in 2012 to an estimated $4.36 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.81% annual earnings loss 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 Fossil Group Inc revealed the company was trading above its Graham Number of $25.49. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 6.88, which was below the industry average of 49.91, 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 $0.64.  (See the full valuation)

FOSL charts August 2016

The Full List

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Clicking on the company name will take you to the company’s latest valuation.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield Graham Number
AFL AFLAC Incorporated D 12/19/2016 $112.32 $71.72 63.85% 11.53 2.29% $87.98
AHL Aspen Insurance Holdings Limited E 12/13/2016 $173.48 $56.75 32.71% 12.58 1.52% $82.44
AIG American International Group Inc E 8/25/2016 $140.01 $64.02 45.73% 17.59 1.87% $82.15
ARW Arrow Electronics, Inc. E 7/3/2016 $124.11 $73.40 59.14% 13.95 0.00% $81.27
BAX Baxter International Inc D 1/28/2017 $111.31 $50.39 45.27% 9.77 0.97% $56.96
BBBY Bed Bath & Beyond Inc. D 6/14/2016 $93.73 $40.40 43.10% 8.23 0.00% $41.96
BK Bank of New York Mellon Corp E 1/7/2017 $77.99 $47.34 60.70% 18.64 1.48% $48.91
C Citigroup Inc E 7/19/2016 $157.95 $60.62 38.38% 14.79 0.33% $85.07
CNO CNO Financial Group Inc E 1/28/2017 $42.30 $21.06 49.79% 19.15 1.42% $24.73
COF Capital One Financial Corp. E 7/6/2016 $142.36 $93.41 65.62% 13.10 1.71% $122.14
DHI D.R. Horton, Inc. E 1/11/2017 $70.21 $30.98 44.12% 14.21 1.03% $32.39
EQR Equity Residential D 8/21/2016 $223.04 $62.76 28.14% 10.84 3.36% $90.07
FOSL Fossil Group Inc E 8/25/2016 $40.21 $19.42 48.30% 4.45 0.00% $25.49
JNS Janus Capital Group Inc E 2/2/2017 $30.95 $12.62 40.78% 15.78 3.33% $13.50
KBH KB Home E 2/4/2017 $84.55 $16.93 20.02% 7.70 0.59% $25.21
KELYA Kelly Services, Inc. E 2/7/2017 $50.08 $21.56 43.05% 11.98 1.30% $30.13
LEN Lennar Corporation E 11/19/2016 $125.38 $47.15 37.61% 14.46 0.34% $49.83
LNC Lincoln National Corporation E 5/20/2016 $198.66 $71.69 36.09% 13.89 1.53% $89.07
MET Metlife Inc E 12/13/2016 $119.73 $53.56 44.73% 13.26 2.89% $78.35
MNST Monster Beverage Corporation E 7/27/2016 $112.75 $43.90 38.94% 14.98 0.00% $45.24
NAVI Navient Corp E 8/31/2016 $92.14 $15.47 16.79% 6.47 4.14% $21.98
PHM PulteGroup, Inc. E 7/18/2016 $79.18 $21.60 27.28% 10.49 1.57% $21.69
PVH PVH Corp D 1/13/2017 $146.17 $90.76 62.09% 15.84 0.17% $95.06
SENEA Seneca Foods Corp E 12/22/2016 $69.62 $37.60 54.01% 13.82 0.00% $69.20
SPOK Spok Holdings, Inc. E 2/9/2017 $54.43 $19.05 35.00% 6.73 2.62% $38.13
STWD Starwood Property Trust, Inc. E 8/25/2016 $57.61 $22.96 39.85% 11.60 8.36% $27.64
TRV Travelers Companies Inc D 12/1/2016 $320.65 $122.36 38.16% 12.40 1.59% $134.38
TSE:CLS Celestica Inc E 1/11/2017 $37.85 $18.30 48.35% 18.67 0.00% $20.71

 

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To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield Graham Number
AFL AFLAC Incorporated D 12/19/2016 $71.72 2.29%
AHL Aspen Insurance Holdings Limited E 12/13/2016 $56.75 1.52%
AIG American International Group Inc E 8/25/2016 $64.02 1.87%
ARW Arrow Electronics, Inc. E 7/3/2016 $73.40 0.00%
BAX Baxter International Inc D 1/28/2017 $50.39 0.97%
BBBY Bed Bath & Beyond Inc. D 6/14/2016 $40.40 0.00%
BK Bank of New York Mellon Corp E 1/7/2017 $47.34 1.48%
C Citigroup Inc E 7/19/2016 $60.62 0.33%
CNO CNO Financial Group Inc E 1/28/2017 $21.06 1.42%
COF Capital One Financial Corp. E 7/6/2016 $93.41 1.71%
DHI D.R. Horton, Inc. E 1/11/2017 $30.98 1.03%
EQR Equity Residential D 8/21/2016 $62.76 3.36%
FOSL Fossil Group Inc E 8/25/2016 $19.42 0.00%
JNS Janus Capital Group Inc E 2/2/2017 $12.62 3.33%
KBH KB Home E 2/4/2017 $16.93 0.59%
KELYA Kelly Services, Inc. E 2/7/2017 $21.56 1.30%
LEN Lennar Corporation E 11/19/2016 $47.15 0.34%
LNC Lincoln National Corporation E 5/20/2016 $71.69 1.53%
MET Metlife Inc E 12/13/2016 $53.56 2.89%
MNST Monster Beverage Corporation E 7/27/2016 $43.90 0.00%
NAVI Navient Corp E 8/31/2016 $15.47 4.14%
PHM PulteGroup, Inc. E 7/18/2016 $21.60 1.57%
PVH PVH Corp D 1/13/2017 $90.76 0.17%
SENEA Seneca Foods Corp E 12/22/2016 $37.60 0.00%
SPOK Spok Holdings, Inc. E 2/9/2017 $19.05 2.62%
STWD Starwood Property Trust, Inc. E 8/25/2016 $22.96 8.36%
TRV Travelers Companies Inc D 12/1/2016 $122.36 1.59%
TSE:CLS Celestica Inc E 1/11/2017 $18.30 0.00%

 

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Disclaimer: 

The author held a long position in Starwood Property Trust (STWD) but did not hold a position in any other company mentioned in this article at the time of publication and had no specific intention of changing that position within the next 72 hours; however, the author does intend to make some trades in the next 72 hours and may select a company from this list.  See my current holdings here.  This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions.  Please also read our full disclaimer.

5 Undervalued Canadian Stocks for Intelligent Investors – February 2017

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

Celestica Inc (TSE:CLS)

Celestica Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, 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 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 Undervalued after growing its EPSmg (normalized earnings) from $0.29 in 2012 to an estimated $0.98 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4% 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 Celestica Inc revealed the company was trading below its Graham Number of $20.71. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 16.51, 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 $6.81.  (See the full valuation)

Intertape Polymer Group (TSE:ITP)

Intertape Polymer Group 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 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 $-0.18 in 2012 to an estimated $1.17 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.91% 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 Intertape Polymer Group revealed the company was trading above its Graham Number of $13.53. The company pays a dividend of $0.7 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.32, which was below the industry average of 28.3, 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 $-1.93.  (See the full valuation)

Canfor Corporation (TSE:CFP)

Canfor Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. 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 Undervalued after growing its EPSmg (normalized earnings) from $-0.16 in 2012 to an estimated $0.81 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.09% 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 Canfor Corporation revealed the company was trading above its Graham Number of $14.31. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 20.68, which was below the industry average of 24.45, 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 $-6.5.  (See the full valuation)

Stella-Jones Inc (TSE:SJ)

Stella-Jones Inc 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 Undervalued after growing its EPSmg (normalized earnings) from $0.84 in 2012 to an estimated $1.9 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.88% 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 Stella-Jones Inc revealed the company was trading above its Graham Number of $27.89. The company pays a dividend of $0.38 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 22.26, 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 $2.03.  (See the full valuation)

Canadian Imperial Bank of Commerce (TSE:CM)

Canadian Imperial Bank of Commerce 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 $7.07 in 2013 to an estimated $9.62 for 2017. 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 Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Canadian Imperial Bank of Commerce revealed the company was trading below its Graham Number of $114.08. The company pays a dividend of $4.75 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.5, which was below the industry average of 21.43, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

What do you think?  Are these companies a good value for Defensive 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 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.  This article first appeared on ModernGraham.

Texas Instruments Inc Valuation – February 2017 $TXN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Texas Instruments Inc (TXN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Texas Instruments Incorporated designs, makes and sells semiconductors to electronics designers and manufacturers across the world. The Company operates through two segments: Analog and Embedded Processing. Its Analog segment’s product line includes High Volume Analog & Logic (HVAL), Power Management (Power), High Performance Analog (HPA) and Silicon Valley Analog (SVA). Its Embedded Processing segment’s product line includes Processor, Microcontrollers and Connectivity. It is also engaged in smaller product lines, such as DLP products (primarily used in projectors to create high-definition images), certain custom semiconductors known as application-specific integrated circuits (ASICs) and calculators. The Company has design, manufacturing or sales operations in over 30 countries. It also offers baseband products, and OMAP applications processors and connectivity products, which are sold into smartphones and consumer tablets.

TXN Chart

TXN data by YCharts

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TXN – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $75,842,694,948 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.29 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 88.10% Pass
6. Moderate PEmg Ratio PEmg < 20 24.14 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.34 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.29 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.57 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $3.13
MG Growth Estimate 10.49%
MG Value $92.21
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $45.37
MG Value based on 0% Growth $26.59
Market Implied Growth Rate 7.82%
Current Price $75.52
% of Intrinsic Value 81.90%

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.

Texas Instruments Incorporated performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.47
Graham Number $28.78
PEmg 24.14
Current Ratio 3.29
PB Ratio 7.34
Current Dividend $1.64
Dividend Yield 2.17%
Number of Consecutive Years of Dividend Growth 14

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $7,457,000,000
Total Current Liabilities $2,264,000,000
Long-Term Debt $2,978,000,000
Total Assets $16,431,000,000
Intangible Assets $5,678,000,000
Total Liabilities $5,958,000,000
Shares Outstanding (Diluted Average) 1,018,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.50
Dec2016 $3.48
Dec2015 $2.82
Dec2014 $2.57
Dec2013 $1.91
Dec2012 $1.51
Dec2011 $1.88
Dec2010 $2.62
Dec2009 $1.15
Dec2008 $1.44
Dec2007 $1.84
Dec2006 $2.78
Dec2005 $1.39
Dec2004 $1.05
Dec2003 $0.60
Dec2002 -$0.20
Dec2001 -$0.12
Dec2000 $1.71
Dec1999 $0.83
Dec1998 $0.26
Dec1997 $1.13

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.13
Dec2016 $2.78
Dec2015 $2.33
Dec2014 $2.09
Dec2013 $1.84
Dec2012 $1.78
Dec2011 $1.87
Dec2010 $1.90
Dec2009 $1.60
Dec2008 $1.78
Dec2007 $1.81
Dec2006 $1.57
Dec2005 $0.83
Dec2004 $0.57
Dec2003 $0.41
Dec2002 $0.37
Dec2001 $0.69

Recommended Reading:

Other ModernGraham posts about the company

15 Best Stocks For Value Investors This Week – 2/13/16
Texas Instruments Inc Valuation – February 2016 $TXN
Texas Instruments Inc Analysis – September 2015 Update $TXN
Texas Instruments Analysis – June 2015 Update $TXN
18 Companies in the Spotlight This Week – 3/15/15

Other ModernGraham posts about related companies

Cray Inc Valuation – Initial Coverage $CRAY
Kulicke and Soffa Industries Inc Valuation – Initial Coverage $KLIC
Keysight Technologies Inc Valuation – Initial Coverage $KEYS
Cohu Inc Valuation – Initial Coverage $COHU
Semtech Corporation Valuation – Initial Coverage $SMTC
Coherent Inc Valuation – Initial Coverage $COHR
Apple Inc Valuation – January 2017 $AAPL
Silicon Laboratories Valuation – Initial Coverage $SLAB
Itron Inc Valuation – Initial Coverage $ITRI
Celestica Inc Valuation – Initial Coverage $TSE:CLS

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.

Knowles Corp Valuation – Initial Coverage $KN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Knowles Corp (KN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Knowles Corporation is a supplier of advanced micro-acoustic, audio processing and specialty component solutions, serving the mobile consumer electronics, communications, medical, military, aerospace and industrial markets. It uses micro-electro-mechanical systems (MEMS) microphones and audio processing technologies to optimize audio systems and develop the user experience in smartphones, tablets and wearables. Its segments include Mobile Consumer Electronics (MCE) and Specialty Components (SC). The MCE segment includes analog and digital microphones, MEMS microphones, surface mounted device microphones, receivers, speakers, integrated modules, multi-functional devices, ultrasonic sensors, voice processors and integrated audio sub-systems. The SC segment includes transducers, oscillators, capacitors and filters. The Company manufactures acoustics components, which are used in hearing aids. Its subsidiary, Audience, Inc., offers intelligent audio and signal processing solutions.

KN Chart

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ModernGraham Valuation of KN – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,684,313,426 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.22 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -7433.33% Fail
6. Moderate PEmg Ratio PEmg < 20 -47.70 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.68 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.22 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.59 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg -$0.40
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$5.75
MG Value based on 0% Growth -$3.37
Market Implied Growth Rate -28.10%
Current Price $18.92
% of Intrinsic Value N/A

Knowles Corp does not satisfy the requirements of either the Enterprising Investor or 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 has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.89 in 2013 to an estimated $-0.4 for 2017. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Knowles Corp revealed the company was trading above its Graham Number of $15.67. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -47.7, 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 $-1.97.

Knowles Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$1.97
Graham Number $15.67
PEmg -47.70
Current Ratio 2.22
PB Ratio 1.68
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $330,100,000
Total Current Liabilities $149,000,000
Long-Term Debt $288,500,000
Total Assets $1,515,100,000
Intangible Assets $972,000,000
Total Liabilities $506,600,000
Shares Outstanding (Diluted Average) 89,774,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.96
Dec2016 -$0.47
Dec2015 -$2.69
Dec2014 -$1.02
Dec2013 $1.24
Dec2012 $0.93
Dec2011 $1.16

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.40
Dec2016 -$0.85
Dec2015 -$0.72
Dec2014 $0.33
Dec2013 $0.89
Dec2012 $0.62
Dec2011 $0.39

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Cray Inc Valuation – Initial Coverage $CRAY
Kulicke and Soffa Industries Inc Valuation – Initial Coverage $KLIC
Keysight Technologies Inc Valuation – Initial Coverage $KEYS
Cohu Inc Valuation – Initial Coverage $COHU
Semtech Corporation Valuation – Initial Coverage $SMTC
Coherent Inc Valuation – Initial Coverage $COHR
Apple Inc Valuation – January 2017 $AAPL
Silicon Laboratories Valuation – Initial Coverage $SLAB
Itron Inc Valuation – Initial Coverage $ITRI
Celestica Inc Valuation – Initial Coverage $TSE:CLS

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.

Cree Inc Valuation – Initial Coverage $CREE

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cree Inc (CREE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cree, Inc. is a manufacturer of lighting-class light emitting diode (LED) products, lighting products and semiconductor products for power and radio-frequency (RF) applications. The Company’s products are focused for applications, such as indoor and outdoor lighting, video displays, transportation, electronic signs and signals, power supplies, inverters and wireless systems. The Company has three segments: Lighting Products, LED Products, and Power and RF Products. The Company’s Lighting Products segment offers LED lighting systems and bulbs. The Company’s LED Products segment offers LED components, LED chips and silicon carbide (SiC) materials. The Company’s Power and RF Products segment offers power devices and RF devices. The Company designs, manufactures and markets lighting systems for indoor and outdoor applications, with a focus on LED lighting systems for the commercial, industrial and consumer markets.

CREE Chart

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

Learn More About Premium Membership

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CREE – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,512,072,899 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 6.99 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -127.19% Fail
6. Moderate PEmg Ratio PEmg < 20 338.29 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.10 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 6.99 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.13 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $0.08
MG Growth Estimate -4.25%
MG Value $11.09
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $1.10
MG Value based on 0% Growth $0.65
Market Implied Growth Rate 164.89%
Current Price $25.71
% of Intrinsic Value 231.82%

Cree, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.83 in 2013 to an estimated $0.08 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 164.89% 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 below the price.

At the time of valuation, further research into Cree, Inc. revealed the company was trading above its Graham Number of $9.93. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 338.29, which was above the industry average of 28.12. Finally, the company was trading above its Net Current Asset Value (NCAV) of $11.09.

Cree, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $11.09
Graham Number $9.93
PEmg 338.29
Current Ratio 6.99
PB Ratio 1.10
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $1,499,695,000
Total Current Liabilities $214,649,000
Long-Term Debt $170,000,000
Total Assets $2,707,670,000
Intangible Assets $764,305,000
Total Liabilities $407,651,000
Shares Outstanding (Diluted Average) 98,467,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.19
Jun2016 -$0.21
Jun2015 -$0.57
Jun2014 $1.00
Jun2013 $0.74
Jun2012 $0.39
Jun2011 $1.33
Jun2010 $1.45
Jun2009 $0.34
Jun2008 $0.38
Jun2007 $0.72
Jun2006 $0.98
Jun2005 $1.18
Jun2004 $0.85
Jun2003 $0.58
Jun2002 -$1.40
Jun2001 $0.37
Jun2000 $0.44
Jun1999 $0.21
Jun1998 $0.12
Jun1997 $0.07

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.08
Jun2016 $0.10
Jun2015 $0.37
Jun2014 $0.88
Jun2013 $0.83
Jun2012 $0.85
Jun2011 $1.00
Jun2010 $0.81
Jun2009 $0.57
Jun2008 $0.73
Jun2007 $0.89
Jun2006 $0.80
Jun2005 $0.57
Jun2004 $0.24
Jun2003 -$0.03
Jun2002 -$0.25
Jun2001 $0.30

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Cray Inc Valuation – Initial Coverage $CRAY
Kulicke and Soffa Industries Inc Valuation – Initial Coverage $KLIC
Keysight Technologies Inc Valuation – Initial Coverage $KEYS
Cohu Inc Valuation – Initial Coverage $COHU
Semtech Corporation Valuation – Initial Coverage $SMTC
Coherent Inc Valuation – Initial Coverage $COHR
Apple Inc Valuation – January 2017 $AAPL
Silicon Laboratories Valuation – Initial Coverage $SLAB
Itron Inc Valuation – Initial Coverage $ITRI
Celestica Inc Valuation – Initial Coverage $TSE:CLS

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.

Cray Inc Valuation – Initial Coverage $CRAY

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cray Inc (CRAY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cray Inc. designs, develops, manufactures, markets and services the high-end of the high performance computing (HPC) market, primarily categories of systems, known as supercomputers and provides storage and data analytics solutions. The Company provides software, system maintenance, support services and engineering services related to supercomputer systems. Its segments are Supercomputing, Storage and Data Management, Maintenance and Support, and Engineering Services and Other. Its products include Cray Supercomputing Systems, including Cray XC40-LC Supercomputer, Cray XC40-AC Supercomputer, Cray CS400-AC Supercomputer, Cray CS400-LC Supercomputer and Cray CS-Storm Supercomputer; Cray Analytics Products, including Cray Urika-GD Graph Discovery Appliance and Cray Urika-XA Extreme Analytics Platform, and Cray Storage and Data Management Products, including Cray Sonexion Storage Systems, Cray DataWarp Applications I/O Accelerator and Cray Tiered Adaptive Storage (TAS).

CRAY Chart

CRAY data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

Learn More About Premium Membership

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of CRAY – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $921,927,031 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.51 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -169.05% Fail
6. Moderate PEmg Ratio PEmg < 20 63.68 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.70 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.51 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $0.34
MG Growth Estimate -4.25%
MG Value $8.80
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $5.00
MG Value based on 0% Growth $2.93
Market Implied Growth Rate 27.59%
Current Price $21.95
% of Intrinsic Value 249.43%

Cray Inc. does not satisfy the requirements of either the Enterprising Investor or 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 ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.54 in 2013 to an estimated $0.34 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 27.59% 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 below the price.

At the time of valuation, further research into Cray Inc. revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 63.68, which was above the industry average of 28.12. Finally, the company was trading above its Net Current Asset Value (NCAV) of $8.8.

Cray Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $8.80
Graham Number $0.00
PEmg 63.68
Current Ratio 3.51
PB Ratio 1.70
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $548,280,000
Total Current Liabilities $156,135,000
Long-Term Debt $0
Total Assets $714,572,000
Intangible Assets $15,819,000
Total Liabilities $189,096,000
Shares Outstanding (Diluted Average) 40,816,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$0.36
Dec2016 $0.26
Dec2015 $0.68
Dec2014 $1.54
Dec2013 $0.81
Dec2012 $4.27
Dec2011 $0.40
Dec2010 $0.43
Dec2009 -$0.02
Dec2008 -$1.25
Dec2007 -$0.18
Dec2006 -$0.53
Dec2005 -$2.91
Dec2004 -$9.96
Dec2003 $3.77
Dec2002 $0.40
Dec2001 -$3.48
Dec2000 -$3.12
Dec1999 -$6.96
Dec1998 -$6.80
Dec1997 -$8.12

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.34
Dec2016 $0.97
Dec2015 $1.40
Dec2014 $1.67
Dec2013 $1.54
Dec2012 $1.53
Dec2011 $0.07
Dec2010 -$0.17
Dec2009 -$0.64
Dec2008 -$1.62
Dec2007 -$1.86
Dec2006 -$2.42
Dec2005 -$3.05
Dec2004 -$2.91
Dec2003 -$0.21
Dec2002 -$2.80
Dec2001 -$4.83

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Kulicke and Soffa Industries Inc Valuation – Initial Coverage $KLIC
Keysight Technologies Inc Valuation – Initial Coverage $KEYS
Cohu Inc Valuation – Initial Coverage $COHU
Semtech Corporation Valuation – Initial Coverage $SMTC
Coherent Inc Valuation – Initial Coverage $COHR
Apple Inc Valuation – January 2017 $AAPL
Silicon Laboratories Valuation – Initial Coverage $SLAB
Itron Inc Valuation – Initial Coverage $ITRI
Celestica Inc Valuation – Initial Coverage $TSE:CLS
Intersil Corp Valuation – Initial Coverage $ISIL

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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