Out of the multitude of companies, which ones would legendary value investor Benjamin Graham buy today? I have compiled a list of 10 great companies that fit the ModernGraham criteria, which are based on Graham's methods. The companies in this list pass the rigorous requirements of either the Defensive Investor or the Enterprising Investor and are either fairly valued or undervalued by the market.
Baxter International Inc. (BAX, Financial)
Baxter International 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. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.6 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.31% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on the Graham value investing formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Baxter International revealed the company was trading below its Graham Number of $56.96. The company pays a dividend of 49 cents per share for a yield of 1%. Its PEmg (price over earnings per share) was 9.12, 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 net current asset value (NCAV) of -96 cents. (See the full valuation)
Capital One Financial Corp. (COF, Financial)
Capital One 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. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $5.15 in 2012 to an estimated $7.13 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.05% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
KB Home 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 should feel comfortable proceeding with the analysis.
As for 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 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, below the industry average of 28.49, 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 $8.5. (See the full valuation)
LGI Homes Inc. (LGIH, Financial)
LGI Homes 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 should feel comfortable proceeding with the analysis.
As for 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 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, below the industry average of 28.49, 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 $15.24. (See the full valuation)
MetLife 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. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $2.37 in 2012 to an estimated $4.04 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.75% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into MetLife revealed the company was trading below its Graham Number of $78.35. The company pays a dividend of $1.55 per share for a yield of 2.7%, putting it among the best dividend-paying stocks today. Its PEmg was 14.01, below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
Navient Corp. (NAVI, Financial)
Navient 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 should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from 63 cents in 2012 to an estimated $2.39 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.25% annual earnings loss over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Navient revealed the company was trading below its Graham Number of $21.98. The company pays a dividend of 64 cents per share for a yield of 4.5%, putting it among the best dividend-paying stocks today. Its PEmg was 6.01, below the industry average of 19.87, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
Seneca Foods Corp. (SENEA, Financial)
Seneca Foods 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 should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg 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 valuation model 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 was 14.87, below the industry average of 24.74, 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 $16.89. (See the full valuation)
Signet Jewelers Ltd. (SIG, Financial)
Signet Jewelers 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 and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $2.84 in 2013 to an estimated $5.77 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.39% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Signet Jewelers revealed the company was trading above its Graham Number of $71.41. The company pays a dividend of $1 per share for a yield of 1.1%. Its PEmg was 15.29, below the industry average of 26.36, 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 $4.06. (See the full valuation)
Synchrony Financial (SYF, Financial)
Synchrony 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 should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $1.74 in 2013 to an estimated $2.8 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.2% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Synchrony Financial revealed the company was trading above its Graham Number of $34.07. The company pays a dividend of 26 cents per share for a yield of 0.7%. Its PEmg was 12.91, below the industry average of 21.33, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
Tesoro 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 should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $2.72 in 2012 to an estimated $7.14 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.59% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Tesoro revealed the company was trading above its Graham Number of $75.72. The company pays a dividend of $2.05 per share for a yield of 2.5%, putting it among the best dividend-paying stocks today. Its PEmg was 11.67, 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 $-62.03. (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 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.
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