There are a number of great companies in the market today, but there are also a number of companies that are vastly overvalued by the market. The ModernGraham valuation model selected the 10 most overvalued companies of the S&P 500.
None of these companies are suitable for the Defensive Investor or the Enterprising Investor. 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.
Concho Resources Inc. (CXO, Financial)
Concho Resources does not satisfy the requirements of either the Enterprising Investor or 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, the poor dividend history and the high PEmg and price-book (P/B) ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, the lack of earnings stability or growth over the last five years and the lack of dividends. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $3.24 in 2013 to an estimated $-2.06 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 Concho Resources 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 -64.32, below the industry average of 69.19, 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 $-29.31. (See the full valuation)
Murphy Oil Corp. (MUR, Financial)
Murphy Oil does not satisfy the requirements of either the Enterprising Investor or 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 P/B ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets and the lack of earnings stability or growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $5.05 in 2013 to an estimated $-2.14 for 2017. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Murphy Oil revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.2 per share for a yield of 4.1%, putting it among the best dividend-paying stocks today. Its PEmg was -13.72, below the industry average of 69.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-22.19. (See the full valuation)
Frontier Communications Corp. (FTR, Financial)
Frontier Communications does not satisfy the requirements of either the Enterprising Investor or 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 P/B ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets and the lack of earnings stability or growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from 22 cents in 2012 to an estimated -20 cents for 2016. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Frontier Communications revealed the company was trading above its Graham Number of $0. The company pays a dividend of 42 cents per share for a yield of 12.5%, putting it among the best dividend-paying stocks today. Its PEmg was -16.82, 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 NCAV of $-19.45. (See the full valuation)
Occidental Petroleum Corp. (OXY, Financial)
Occidental does not satisfy the requirements of either the Enterprising Investor or 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 P/B ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets and the lack of earnings stability or growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $6.6 in 2013 to an estimated $-1.54 for 2017. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Occidental revealed the company was trading above its Graham Number of $14.88. The company pays a dividend of $3.02 per share for a yield of 4.7%, putting it among the best dividend-paying stocks today. Its PEmg was -42.25, below the industry average of 69.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-17.26. (See the full valuation)
Loews 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 growth over the last 10 years and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $2.57 in 2012 to an estimated $1.36 for 2016. This level of demonstrated earnings growth does not support the market's implied estimate of 12.93% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Loews revealed the company was trading above its Graham Number of $45.27. The company pays a dividend of 25 cents per share for a yield of 0.5%. Its PEmg was 34.37, which was above the industry average of 18.78. (See the full valuation)
ExxonMobil Corp. (XOM, Financial)
ExxonMobil does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio and insufficient earnings growth over the last 10 years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets and the lack of earnings growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $7.83 in 2012 to an estimated $4.85 for 2016. This level of demonstrated earnings growth does not support the market's implied estimate of 4.18% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into ExxonMobil revealed the company was trading above its Graham Number of $43.35. The company pays a dividend of $2.96 per share for a yield of 3.6%, putting it among the best dividend-paying stocks today. Its PEmg was 16.87, below the industry average of 69.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-30.12. (See the full valuation)
Mosaic does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last 10 years and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets and the lack of earnings growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $4.36 in 2012 to an estimated $2.43 for 2016. This level of demonstrated earnings growth does not support the market's implied estimate of 2.39% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Mosaic revealed the company was trading above its Graham Number of $22.48. The company pays a dividend of $1.1 per share for a yield of 3.4%, putting it among the best dividend-paying stocks today. Its PEmg was 13.27, which was above the industry average of 13.11. Finally, the company was trading above its NCAV of $-11.32. (See the full valuation)
Freeport-McMoRan Inc. (FCX, Financial)
Freeport-McMoRan 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 over the last 10 years, the poor dividend history and the high PEmg and P/B 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. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $3.39 in 2013 to an estimated $-2.99 for 2017. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Freeport-McMoRan revealed the company was trading above its Graham Number of $5.5. The company pays a dividend of five cents per share for a yield of 0.3%. Its PEmg was -5.5, below the industry average of 47.18, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-14.77. (See the full valuation)
Halliburton Co. (HAL, Financial)
Halliburton 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 10 years and the high PEmg and P/B 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. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $2.51 in 2013 to an estimated $-2.51 for 2017. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Halliburton revealed the company was trading above its Graham Number of $0. The company pays a dividend of 72 cents per share for a yield of 1.2%. Its PEmg was -23.22, below the industry average of 69.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-6.9. (See the full valuation)
Boston Scientific Corp. (BSX, Financial)
Boston Scientific does not satisfy the requirements of either the Enterprising Investor or 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, the poor dividend history and the high PEmg and P/B ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, the lack of earnings stability over the last five years and the lack of dividends. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after growing its EPSmg from $-1.21 in 2012 to an estimated -12 cents for 2016. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Boston Scientific revealed the company was trading above its Graham Number of $6.94. The company does not pay a dividend. Its PEmg was -198.07, below the industry average of 32.29, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-5.82. (See the full valuation)
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 read our full disclaimer. This article first appeared on ModernGraham.
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