By using the ModernGraham Valuation Model, I've selected the companies in the MG Universe that trade the closest to their net current asset value (NCAV). NCAV is a useful figure for determining whether a company is trading at a significant bargain.
NCAV is calculated by taking the total current assets less the total liabilities. In other words, the figure is what would be left if investors purchased the company and used cash to pay off all the liabilities. The remainder would then be available to be distributed to the investors. As a result, companies should rarely, if ever, trade below NCAV. Companies that trade close to the figure may also have some opportunities for profit.
Each company I've selected has been determined to be suitable for the Defensive Investor and/or the Enterprising Investor and undervalued 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.
Seneca Foods
Seneca Foods Corp. (SENEA, 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 (normalized earnings) from $1.73 in 2012 to an estimated $2.72 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.19% 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 Seneca Foods revealed the company was trading below its Graham Number of $69.2. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 14.87, which was below the industry average of 24.74. By some methods of valuation that makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $16.89. (See the full valuation.)
LGI Homes
LGI Homes Inc. (LGIH, 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 over the last 10 years and the 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 39 cents in 2013 to an estimated $2.76 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.6% 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 LGI Homes revealed the company was trading below its Graham Number of $36.13. The company does not pay a dividend. Its PEmg was 11.7, 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 NCAV of $15.24. (See the full valuation.)
KB Home
KB Home (KBH, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size and insufficient earnings stability or growth over the last 10 years. 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 -72 cents in 2013 to an estimated $2.2 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.52% annual earnings loss 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 KB Home revealed the company was trading below its Graham Number of $25.21. The company pays a dividend of 10 cents per share for a yield of 0.6%. Its PEmg was 7.47, 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 NCAV of $8.5. (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 NCAV of $10.02. (See the full valuation.)
D.R. Horton
D.R. Horton Inc. (DHI, 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 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 $1.22 in 2013 to an estimated $2.18 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.23% 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 D.R. Horton revealed the company was trading below its Graham Number of $32.39. The company pays a dividend of 32 cents per share, for a yield of 1.1%. Its PEmg was 12.97, 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 NCAV of $13.03. (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 those holdings within the next 72 hours. This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not related to the companies mentioned in any capacity. Please take a moment to read our detailed disclaimer. This article first appeared on ModernGraham.
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