There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected the five undervalued companies for value investors reviewed by ModernGraham with the highest beta. A company's beta indicates the correlation at which its price moves in relation to the market. A beta greater than 1 indicates a company is more 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. This is a sample of one screen that is included in ModernGraham Stocks & Screens. 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 high beta, Mr. Market may turn these companies around very quickly, so be sure to check them out in depth!
Seagate Technology (STX, Financial)
As this stock analysis shows, Seagate Technology is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor is concerned by the low current ratio, lack of earnings stability over the last ten years, inconsistent dividend record, and the high PB ratio. 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 based on Benjamin Graham's methods should feel very comfortable proceeding with further research and comparing the company to other opportunities. From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.34 in 2011 to an estimated $5.01 for 2015. This level of demonstrated growth outpaces the market's implied estimate of 1.26% annual earnings growth over the next 7-10 years and leads the ModernGraham valuation model, based on Benjamin Graham's formula, to return an estimate of intrinsic value well above the price. (See the full valuation)
Invesco Limited (IVZ, Financial)
Invesco Limited qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only concerned with the low current ratio. The Enterprising Investor has concerns with the level of debt relative to the current assets, but is willing to overlook those issues since the company meets the more conservative Defensive Investor's requirements. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with the evaluation. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.22 in 2011 to an estimated $2.17 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 4.49% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value well above the price. (See the full valuation)
Lincoln National Corporation (LNC, Financial)
Lincoln National Corporation passes the initial requirements of the Enterprising Investor, but not the more conservative Defensive Investor. The Defensive Investor is concerned by the company's lack of earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company's intrinsic value.
When it comes to that valuation, it is critical to consider the company's earnings history. In this case, it has grown its EPSmg (normalized earnings) from $0.80 in 2011 to an estimated $5.01 for 2015. This is a very strong level of demonstrated growth, which is well above the market's implied estimate for annual earnings growth of 1.59% over the next 7-10 years.
In recent years, the company's actual growth in EPSmg has been astronomical, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that the company is undervalued at the present time. (See the full valuation)
PulteGroup Inc. (PHM, Financial)
PulteGroup is not suitable for Defensive Investors but it does pass the initial requirements of the Enterprising Investor. The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years, and the unstable dividend history, while the Enterprising Investor's only concern is the lack of earnings stability over the last five years. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company's intrinsic value.
When it comes to that valuation, it is critical to consider the company's earnings history. In this case, it has grown its EPSmg (normalized earnings) from a loss of $3.12 in 2011 to an estimated gain of $2.11 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market's implied estimate for annual earnings growth of only 0.61% over the next 7-10 years.
In recent years, the company's actual growth in EPSmg has averaged considerably more than the market's estimate annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that PulteGroup is significantly undervalued at the present time, a result which is in line with some of its peers. (See the full valuation)
MetLife Inc. (MET, Financial)
MetLife passes the initial requirements of the Enterprising Investor but not the Defensive Investor. In fact, the company passes every requirement of the Enterprising Investor types, but the Defensive Investor is concerned by the lack of earnings stability and insufficient earnings growth over the last ten years. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company's intrinsic value.
When it comes to that valuation, it is critical to consider the company's earnings history. In this case, it has grown its EPSmg (normalized earnings) from $3.02 in 2011 to an estimated $4.48 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market's implied estimate for annual earnings growth of only 2.15% over the next 7-10 years.
In recent years, the company's actual growth in EPSmg has averaged around 9.6% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that MetLife is significantly undervalued at the present time. (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.
Disclaimer: 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.
