Out of the multitude of companies, which ones would legendary value investor Benjamin Graham buy today? I've compiled 10 great companies that fit the ModernGraham criteria, based on Benjamin Graham's methods. The companies in this list pass the rigorous requirements of either the Defensive Investor or the Enterprising Investor and are undervalued by the market.
Here are the 10 companies Benjamin Graham would invest in today:
CF Industries Holdings Inc. (CF, Financial)
CF Industries Holdings 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 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 $2.46 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 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. (See the full valuation)
Fifth Third Bancorp (FITB, Financial)
Fifth Third Bancorp qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor has concerns regarding the insufficient earnings stability over the last 10 years, while 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 the next stage of the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from 30 cents in 2011 to an estimated $1.66 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.39% annual earnings growth 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. (See the full valuation)
Ford Motor Company (F, Financial)
Ford Motor Company qualifies 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 inconsistent dividend record. 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 $1.30 in 2011 to an estimated $1.59 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.08% annual earnings growth 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. (See the full valuation)
Gap Inc. (GPS, Financial)
Gap qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, and the high PB ratio. 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 $1.59 in 2012 to an estimated $2.57 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.99% annual earnings growth 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. (See the full valuation)
KKR & Co. L.P. (KKR, Financial)
KKR & Co. LP qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor has concerns regarding the company's short history as a publicly traded entity while 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 the next stage of the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from 44 cents in 2011 to an estimated $1.48 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.57% annual earnings growth 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. (See the full valuation)
Lincoln National Corporation (LNC, Financial)
Lincoln National Corporation qualifies 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, 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 the next stage of the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from 80 cents in 2011 to an estimated $5.48 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.88% annual earnings growth 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. (See the full valuation)
PulteGroup Inc. (PHM, Financial)
PulteGroup qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years, along with the inconsistent dividend history. The Enterprising Investor is only initially concerned by the lack of earnings stability over the last five years. 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 a loss of $3.12 in 2011 to an estimated gain of $2.14 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.23% annual earnings growth 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. (See the full valuation)
Seagate Technology PLC (STX, Financial)
Seagate Technology PLC qualifies 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 short dividend history, and the high PB ratio. The Enterprising Investor is only initially 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 $2.39 in 2012 to an estimated $4.63 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.11% annual earnings growth 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. (See the full valuation)
Valero Energy Corporation (VLO, Financial)
Valero Energy Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, and the insufficient earnings growth or stability over the last 10 years. 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 95 cents in 2011 to an estimated $6.06 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.71% annual earnings growth 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. (See the full valuation)
Weyerhaeuser Co. (WY, Financial)
Weyerhaeuser Company qualifies for the Enterprising Investor but is not suitable for the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth or stability over the last 10 years, and the high PEmg and PB ratios. The Enterprising Investor is only initially concerned by 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 89 cents in 2011 to an estimated $1.49 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 6.24% annual earnings growth 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. (See the full valuation)
Disclaimer:
The author held a long position in Ford Motor Company (F, Financial), but did not hold a position in any other 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.
