Out of the multitude of companies, which ones would legendary value investor Benjamin Graham buy today? I've compiled a list of 10 great companies that fit the ModernGraham criteria, based on Benjamin Graham's methods. The companies in this list pass the rigorous requirements of either the Defensive Investor or the Enterprising Investor and are undervalued by the market.
Here are the 10 companies Graham would invest in today:
Ameriprise Financial
Ameriprise Financial Inc. (AMP, Financial) 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 10 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 $3.92 in 2012 to an estimated $7.78 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.14% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
BorgWarner
BorgWarner Inc. (BWA, Financial) 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 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 Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
Citigroup
Citigroup Inc. (C, Financial) 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 along with the inconsistent dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on 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 $6.47 in 2011 to an estimated gain of $3.81 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.66% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
Ford Motor Company
Ford Motor Company (F, Financial) 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 inconsistent dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on 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 2011 to an estimated $1.60 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.29% annual earnings loss over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
Invesco Ltd.
Invesco Ltd. (IVZ, Financial) qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only initially concerned by the low current ratio while the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company passes the more stringent Defensive Investor requirements. As a result, all value investors following the ModernGraham approach based on 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 $1.22 in 2011 to an estimated $2.12 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.52% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
LyondellBasell Industries
LyondellBasell Industries NV (LYB, Financial) 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 10 years, the poor dividend history and the high PB ratio. 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 $-944.17 in 2012 to an estimated $8.48 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.4% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
Pfizer
Pfizer Inc. (PFE, Financial) 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 insufficient earnings growth over the last 10 years. 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 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 $1.18 in 2011 to an estimated $1.91 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.21% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
Phillips 66
Phillips 66 (PSX, Financial) 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 10 years and the poor dividend history. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $4.40 in 2012 to an estimated $6.75 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.38% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
United Technologies
United Technologies Corp. (UTX, Financial) 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 $5.17 in 2012 to an estimated $7.65 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.29% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
Western Digital
Western Digital Corp. (WDC, Financial) qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only concerned with the short dividend history. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach based on 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 $4.74 in 2012 to an estimated $5.98 for 2016. This level of demonstrated earnings growth supports the market's implied estimate of 1.98% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Disclosure: The author held long positions in Western Digital Corp. and Ford Motor Company but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here.
Disclaimer:Â 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.
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