We evaluated 50 different companies this week to determine whether they are suitable for Defensive Investors, those unwilling to do substantial research, or Enterprising Investors, those who are willing to do such research. We also put each company through the ModernGraham valuation model based on Benjamin Graham's value investing formulas in order to determine an intrinsic value for each. Out of those 50 companies, only 26 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors.
The Elite
The following companies were found to be suitable for either the Defensive Investor or Enterprising Investor and undervalued:
Aflac qualifies for both the Enterprising Investor and the more conservative Defensive Investor. In fact, the company passes all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $4.72 in 2012 to an estimated $6.24 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.40% annual earnings growth over the next seven to 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)
Ametek qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio as well as the high PEmg and PB ratios. The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.21 in 2011 to an estimated $2.24 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 5.85% annual earnings growth over the next seven to 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)
BorgWarner Inc. (BWA, Financial)
BorgWarner qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last 10 years and the inconsistent dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.24 in 2011 to an estimated $2.67 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.08% annual earnings growth over the next seven to 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)
Cigna qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $4.11 in 2011 to an estimated $6.88 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 5.46% annual earnings loss over the next seven to 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)
Cisco Systems Inc. (CSCO, Financial)
Cisco Systems qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only initially concerned by the short dividend record, while the Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.30 in 2012 to an estimated $1.79 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.34% annual earnings growth over the next seven to 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)
Fluor qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the low current ratio, and the Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.13 in 2011 to an estimated $3.57 for 2015. This level of demonstrated earnings growth supports the market's implied estimate of 1.77% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Keurig Green Mountain Inc. (GMCR)
Keurig Green Mountain qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the short dividend history along with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.30 in 2012 to an estimated $3.24 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 9.51% annual earnings loss over the next seven to 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)
Marsh & McLennan Company (MMC)
Marsh & McLennan Company qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last 10 years, and the high PEmg and PB ratios. The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.38 in 2011 to an estimated $2.57 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 6.11% annual earnings loss over the next seven to 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)
MetLife Inc. (MET)
MetLife qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth or stability over the last 10 years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.02 in 2011 to an estimated $4.26 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.60% annual earnings growth over the next seven to 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)
Motorola Solutions Inc. (MSI)
Motorola Solutions qualifies 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 10 years, the inconsistent dividend history, and the high PB ratio. The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $0.15 in 2011 to an estimated gain of $3.70 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 4.45% annual earnings growth over the next seven to 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)
National Oilwell Varco Inc. (NOV)
National Oilwell Varco qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last 10 years and the short dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $4.24 in 2011 to an estimated $4.36 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of negative 0.96% annual earnings growth over the next seven to 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)
Scripps Networks Interactive Inc. (SNI)
Scripps Networks Interactive qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth or stability over the last 10 years and the short dividend history. The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.82 in 2011 to an estimated $3.89 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.74% annual earnings loss over the next seven to 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)
TJX Companies Inc. (TJX)
TJX Companies qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio as well as the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.56 in 2012 to an estimated $2.98 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 7.69% annual earnings growth over the next seven to 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)
Torchmark Corp. (TMK)
Torchmark qualifies for both the Enterprising Investor and the more conservative Defensive Investor. In fact, the company passes all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.63 in 2011 to an estimated $3.91 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.45% annual earnings growth over the next seven to 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)
Twenty-First Century Fox Inc. (FOXA, Financial)
Twenty-First Century Fox qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the insufficient earnings stability over the last 10 years, and the Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from 58 cents in 2012 to an estimated $2.43 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.09% annual earnings growth over the next seven to 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)
Union Pacific Corporation (UNP)
Union Pacific Corporation qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the low current ratio, and the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company meets the more stringent Defensive Investor requirements. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.23 in 2012 to an estimated $5.26 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.69% annual earnings growth over the next seven to 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)
VF Corporation (VFC)
VF Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.48 in 2011 to an estimated $2.66 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 7.59% annual earnings loss over the next seven to 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)
The Good
The following companies were found to be suitable for the Defensive Investor or Enterprising Investor and Fairly Valued:
Accenture PLC (ACN, Financial)
Accenture PLC qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, and the high PEmg and PB ratios. The Enterprising Investor is only initially concerned by the low current ratio. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.22 in 2012 to an estimated $4.80 for 2016. This level of demonstrated earnings growth supports the market's implied estimate of 6.44% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Aetna qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the low current ratio, and the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company meets the more stringent Defensive Investor requirements. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.03 in 2011 to an estimated $5.91 for 2015. This level of demonstrated earnings growth supports the market's implied estimate of 4.52% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Allegion PLC (ALLE, Financial)
Allegion PLC qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the short history as a stand-alone company. The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from 76 cents in 2011 to an estimated $1.53 for 2015. This level of demonstrated earnings growth supports the market's implied estimate of 15.07% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Cerner Corporation (CERN, Financial)
Cerner Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the lack of dividends as well as the high PEmg and PB ratios. The Enterprising Investor is only initially concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from 70 cents in 2011 to an estimated $1.37 for 2015. This level of demonstrated earnings growth supports the market's implied estimate of 16.26% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
CSX Corporation (CSX, Financial)
CSX Corporation qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the low current ratio, and the Enterprising Investor is only concerned by the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.51 in 2012 to an estimated $1.86 for 2016. This level of demonstrated earnings growth supports the market's implied estimate of 1.77% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Genuine Parts Co. (GPC)
Genuine Parts qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio along with the high PB ratio. The Enterprising Investor is only initially concerned by the low current ratio. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.08 in 2011 to an estimated $4.41 for 2015. This level of demonstrated earnings growth supports the market's implied estimate of 5.51% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Hanesbrands Inc. (HBI)
Hanesbrands qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the short dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from 46 cents in 2011 to an estimated 93 cents for 2015. This level of demonstrated earnings growth supports the market's implied estimate of 12.07% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Norfolk Southern Corp. (NSC)
Norfolk Southern qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the low current ratio, and the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company meets the more stringent Defensive Investor requirements. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.71 in 2012 to an estimated $5.58 for 2016. This level of demonstrated earnings growth supports the market's implied estimate of 1.73% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Rockwell Automation Inc. (ROK)
Rockwell Automation qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last 10 years along with the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.10 in 2012 to an estimated $5.66 for 2016. This level of demonstrated earnings growth supports the market's implied estimate of 4.09% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.
This article first appeared on ModernGraham.
