There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected the 10 lowest PEmg (price-normalized earnings). Each company has been determined to be undervalued.
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.
Bed Bath & Beyond Inc. (BBBY, Financial)
Bed Bath & Beyond Inc. qualifies for both the defensive investor and the enterprising investor. The defensive investor is only initially concerned with the poor dividend history. The enterprising investor is only concerned with the lack of dividends.Â
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.63 in 2013 to an estimated $4.91 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.18% annual earnings growth over the next seven to 10 years.
Western Digital Corp. (WDC, Financial)
Western Digital Corp. qualifies for both the defensive investor and the enterprising investor. The defensive investor is concerned only with the short dividend history. The enterprising investor has no initial concerns.Â
As for a valuation, the company appears to be fairly valued after growing its EPSmg 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.Â
Gap Inc. qualifies for both the enterprising investor and the more conservative defensive investor. The defensive investor is initially concerned only by the low current ratio while the enterprising investor has no initial concerns.Â
As for a valuation, the company appears to be undervalued after growing its EPSmg from $1.59 in 2012 to an estimated $2.44 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.66% annual earnings growth over the next seven to 10 years.
Unum Group 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.Â
As for a valuation, the company appears to be undervalued after growing its EPSmg from $2.30 in 2012 to an estimated $3.13 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.91% annual earnings growth over the next seven to 10 years.Â
Franklin Resources Inc. (BEN, Financial)
Franklin Resources Inc. 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 condition.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $2.50 in 2012 to an estimated $3.17 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.0% annual earnings growth over the next seven to 10 years.
Discover Financial Services (DFS, Financial)
Discover Financial Services 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.Â
As for a valuation, the company appears to be undervalued after growing its EPSmg from $3.26 in 2012 to an estimated $5.01 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.25% annual earnings growth over the next seven to 10 years.Â
Twenty-First Century Fox Inc. (FOXA, Financial)
Twenty-First Century Fox Inc. qualifies for both the enterprising investor and the more conservative defensive investor. The defensive investor is concerned only by the insufficient earnings stability over the last 10 years, and the enterprising investor is concerned only with the level of debt relative to the net current assets.Â
As for a valuation, the company appears to be undervalued after growing its EPSmgfrom 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.
JPMorgan Chase & Co. (JPM, Financial)
JPMorgan Chase qualifies for both the enterprising investor and the more conservative defensive investor. The company passes all of the requirements of both investor types, an indication of the strong financial position.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $4.11 in 2012 to an estimated $5.48 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.83% annual earnings growth over the next seven to 10 years.Â
PNC Financial Services Group Inc. (PNC)
PNC Financial Services Group Inc qualifies for both the defensive investor and the enterprising investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. The Enterprising Investor has no initial concerns.Â
As for a valuation, the company appears to be Undervalued after growing its EPSmg from $5.16 in 2012 to an estimated $7.04 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.57% annual earnings growth over the next seven to 10 years.
Aflac Inc. 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 for a valuation, the company appears to be undervalued after growing its EPSmg 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.Â
What do you think? Are these companies a good value for Defensive Investors? Is there a company you like better?Â
Disclaimer:
The author held a long position in Western Digital Corp (WDC, Financial) 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. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.
