There are a number of great companies in the market today. By using the ModernGraham valuation model, I've selected the 10 most undervalued companies among those reviewed. Each company has been determined to be suitable for the Enterprising Investor.
Defensive Investors are defined as investors who 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.
Prudential Financial Inc. (PRU, Financial)
Prudential 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. 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 valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.17 in 2014 to an estimated $12.54 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.45% annual earnings loss over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Prudential revealed the company was trading below its Graham Number of $185.87. The company pays a dividend of $3 per share, for a yield of 3.1%, putting it among the best dividend-paying stocks today. Its PEmg (price over earnings per share - ModernGraham) was 7.6, below the industry average of 30.02, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
Lucara Diamond Corp. (TSX:LUC, Financial)
Lucara Diamond 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 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 8 cents in 2014 to an estimated 22 cents for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.98% 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 Lucara Diamond revealed the company was trading above its Graham Number of $1.96. The company pays a dividend of 10 cents per share, for a yield of 4.3%, putting it among the best dividend-paying stocks today. Its PEmg was 10.45, below the industry average of 42.77, 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 of -3 cents. (See the full valuation)
Gilead Sciences Inc. (GILD, Financial)
Gilead Sciences is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history and the high price-book ratio. 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 $3.61 in 2014 to an estimated $7.05 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.33% 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 Gilead Sciences revealed the company was trading above its Graham Number of $46.47. The company pays a dividend of $2.08 per share, for a yield of 2.6%, putting it among the best dividend-paying stocks today. Its PEmg was 11.16, below the industry average of 28.67, 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 $-13.66. (See the full valuation)
Lincoln National Corp. (LNC, Financial)
Lincoln National 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 $4.25 in 2014 to an estimated $7.21 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.03% 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 Lincoln National revealed the company was trading below its Graham Number of $121.79. The company pays a dividend of 87 cents per share, for a yield of 1.1%. Its PEmg was 10.56, below the industry average of 20.16, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (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 93 cents in 2014 to an estimated $2.8 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 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 below its Graham Number of $36.58. The company pays a dividend of 56 cents per share, for a yield of 1.6%. Its PEmg was 12.5, below the industry average of 22.96, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
Tyson Foods Inc. (TSN, Financial)
Tyson is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio and insufficient earnings stability over the last 10 years. 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 $2.13 in 2014 to an estimated $5.52 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.07% 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 Tyson revealed the company was trading below its Graham Number of $73.4. The company pays a dividend of 90 cents per share, for a yield of 1.3%. Its PEmg was 12.65, below the industry average of 24.35, 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 $-26.88. (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 $3.86 in 2014 to an estimated $6.07 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.22% 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 Signet Jewelers revealed the company was trading below its Graham Number of $61.99. The company pays a dividend of $1.04 per share, for a yield of 2.1%, putting it among the best dividend-paying stocks today. Its PEmg was 8.06, below the industry average of 30.22, 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 $-3.32. (See the full valuation)
Citizens Financial Group Inc. (CFG, Financial)
Citizens Financial Group 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 -89 cents in 2014 to an estimated $2.67 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.59% 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 Citizens Financial Group revealed the company was trading below its Graham Number of $55.04. The company pays a dividend of 64 cents per share, for a yield of 1.5%. Its PEmg was 15.67, below the industry average of 22.06, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
Morgan Stanley (MS, Financial)
Morgan Stanley 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 $1.23 in 2014 to an estimated $3.24 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 4.64% 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 Morgan Stanley revealed the company was trading below its Graham Number of $59.03. The company pays a dividend of 90 cents per share, for a yield of 1.6%. Its PEmg was 17.77, below the industry average of 25.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
GameStop Corp. (GME, Financial)
GameStop is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth 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 $2.03 in 2015 to an estimated $2.45 for 2019. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.3% 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 GameStop revealed the company was trading below its Graham Number of $37.34. The company pays a dividend of $1.52 per share, for a yield of 10.5%, putting it among the best dividend-paying stocks today. Its PEmg was 5.91, below the industry average of 37.1, 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 $-2.68. (See the full valuation)
Disclosure: 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 and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions. Please also read our full disclaimer. This article first appeared on ModernGraham.
