We evaluated 27 different companies this week to determine whether they are suitable for Defensive Investors -- those unwilling to do substantial research -- or Enterprising Investors --  those who are willing to do such research. We also put each company through the ModernGraham valuation model based on Benjamin Graham's value investing formulas in order to determine an intrinsic value for each. Out of those 27 companies, only 10 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors.
Here's a summary of the best stocks for value investors this week.
The Elite
The following companies were found to be suitable for either the Defensive Investor or Enterprising Investor and undervalued:
Amgen Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the short dividend history and high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $4.23 in 2011 to an estimated $7.04 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 6.11% 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 above the price. (See the full valuation)
CF Industries Holdings (CF, Financial)
CF Industries Holdings Inc. qualifies for both the Defensive Investor and for the Enterprising Investor. The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor's only concern is the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach based on Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.46 in 2011 to an estimated $4.75 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.62% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
Fossil Group Inc. (FOSL, Financial)
Fossil Group Inc. qualifies for both the Defensive Investor and for the Enterprising Investor. Both investor types are only concerned by the lack of dividend. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.34 in 2011 to an estimated $5.86 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.71% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
Graham Holdings Company (GHC, Financial)
Graham Holdings Company qualifies for both the Defensive Investor and for the Enterprising Investor. The Defensive Investor is only concerned with the inconsistent dividend history. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $18.06 in 2011 to an estimated $70.23 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.06% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
Harris Corporation (HRS, Financial)
Harris Corporation qualifies for both the Defensive Investor and for the Enterprising Investor. The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor's only concern is the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.42 in 2012 to an estimated $3.86 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 5.06% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
Moody's Corporation (MCO, Financial)
Moody's Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. 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 comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.16 in 2011 to an estimated $4.044 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 8.37% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
T.Rowe Price Group Inc. (TROW, Financial)
T.Rowe Price Group Inc. qualifies for both the Defensive Investor and for the Enterprising Investor. The Defensive Investor is only concerned by the high PB ratio while the Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.38 in 2011 to an estimated $4.16 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 4.03% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
The Good
The following companies were found to be suitable for the Defensive Investor or Enterprising Investor and Fairly Valued:
Chubb Corporation (CB, Financial)
Chubb Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company's strong fundamentals. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the next stage of the analysis.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $6.08 in 2011 to an estimated $7.68 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.63% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
NetApp Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor's only concern is the short dividend history while the Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.30 in 2012 to an estimated $1.83 for 2016. This level of demonstrated earnings growth supports the market's implied estimate of 3.74% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
Ralph Lauren Corporation (RL, Financial)
Ralph Lauren Corporation qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company passes all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $5.66 in 2012 to an estimated $7.54 for 2015. This level of demonstrated earnings growth supports the market's implied estimate of 3.13% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value within a margin of safety relative to the price. (See the full valuation)
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 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.
This article first appeared on ModernGraham.
