There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected five undervalued companies with a low beta reviewed by ModernGraham.
A company's beta indicates the correlation at which its price moves in relation to the market. A beta less than 1 indicates a company is less volatile than the market.
Each company has been determined to be suitable for either the Defensive Investor 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.
With a low beta, Mr. Market may not hit these companies as harshly in a downturn so check them out in depth.
Tyson Foods
Tyson Foods Inc. (TSN, 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 or growth over the last 10 years and the high PEmg and price-book (P/B) 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 $1.28 in 2012 to an estimated $3.17 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 7.76% annual earnings growth over the next seven to 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 Tyson Foods revealed the company was trading above its Graham Number of $52.23. The company pays a dividend of 55 cents per share for a yield of 0.7%. Its PEmg (price over earnings per share - ModernGraham) was 24.01, which was below the industry average of 30.19. By some methods of valuation that makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.94. (See the full valuation.)
Super Micro Computer
Super Micro Computer Inc. (SMCI, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size and 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 from 64 cents in 2013 to an estimated $1.42 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 5.17% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Super Micro Computer revealed the company was trading above its Graham Number of $21.83. The company does not pay a dividend. Its PEmg was 18.85, which was below the industry average of 38.13. By some methods of valuation that makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $10.02. (See the full valuation.)
Stella-Jones
Stella-Jones Inc. (TSX:SJ, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and P/B 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 from 84 cents 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 seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Stella-Jones revealed the company was trading above its Graham Number of $27.89. The company pays a dividend of 38 cents per share for a yield of 0.9%. Its PEmg was 22.26, which was below the industry average of 28.49. By some methods of valuation that 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.)
Equity Residential
Equity Residential (EQR, 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 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 seven to 10 years. As a result, the ModernGraham valuation model 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 was 11.29, which was below the industry average of 34.03. By some methods of valuation that 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.)
Intertape Polymer Group
Intertape Polymer Group (TSX:ITP, Financial) 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 10 years, the poor dividend history and the high PEmg and P/B 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 from -18 cents 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 seven to 10 years. As a result, the ModernGraham valuation model 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 70 cents per share for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg was 20.32, which was below the industry average of 28.3. By some methods of valuation that 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.)
What do you think? Are these companies a good value for Defensive Investors and Enterprising Investors? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclosure:Â 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.
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