There are a number of great companies in the market today. Using the ModernGraham Valuation Model, these are the five undervalued companies for value investors 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 using the ModernGraham approach. Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments and 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!
Lincoln National Corp. (LNC, Financial)
Lincoln National Corp. 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 a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.04 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.12% 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 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 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 a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.39 in 2012 to an estimated $3.74 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.03% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value above the price. (See the full valuation)
Invesco Ltd. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.3 in 2012 to an estimated $2.15 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.37% 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)
Franklin Resources Inc. (BEN, Financial)
Franklin Resources Inc. 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 a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.5 in 2012 to an estimated $3.2 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.5% 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 Franklin Resources Inc. revealed the company was trading above its Graham Number of $35.55. The company pays a dividend of 69 cents per share for a yield of 1.9%. Its PEmg (price over earnings per share) was 11.51, below the industry average of 19.87, 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 $14.41. (See the full valuation)
Textron Inc. 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 or growth 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 a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.05 in 2012 to an estimated $2.33 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.47% 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)
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.
Disclosure: The author held a long position in Invesco Ltd (IVZ, 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.Â
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