There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected the 10 lowest PEmg (price/normalized earnings) companies reviewed by ModernGraham. Each company has been determined to be undervalued and suitable for the Defensive Investor according to the ModernGraham approach.
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. Defensive Investors may also be interested in reviewing 10 Most Undervalued Companies for the Defensive Investor - September 2015 while also conducting further research into the following companies.
Bed Bath & Beyond
Bed Bath & Beyond Inc. (BBBY, Financial) qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.63 in 2013 to an estimated $4.91 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.18% 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.)
Baxter International
Baxter International Inc. (BAX, Financial) 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 following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $3.6 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.31% 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.
At the time of valuation, further research into Baxter International revealed the company was trading below its Graham Number of $56.96. The company pays a dividend of 49 cents per share for a yield of 1%. Its PEmg was 9.12, which was below the industry average of 32.29. By some methods of valuation that makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of -96 cents. (See the full valuation.)
Gap
Gap Inc. (GPS, Financial) 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 no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $1.87 in 2013 to an estimated $2.3 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.25% 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.
At the time of valuation, further research into Gap revealed the company was trading above its Graham Number of $16.15. The company pays a dividend of 92 cents per share for a yield of 3.6%, putting it among the best dividend-paying stocks today. Its PEmg was 10.99, which was below the industry average of 26.26. By some methods of valuation that makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.61. (See the full valuation.)
Equity Residential
Equity Residential (EQR, Financial) 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 following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $2.15 in 2012 to an estimated $5.79 for 2016. 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 returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Equity Residential revealed the company was trading below its Graham Number of $90.07. The company pays a dividend of $2.11 per share for a yield of 3.2%, putting it among the best dividend-paying stocks today. Its PEmg was 11.29, which was below the industry average of 34.03. By some methods of valuation that makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.85. (See the full valuation.)
AFLAC
AFLAC Inc. (AFL, Financial) 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 following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $4.72 in 2012 to an estimated $6.22 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.36% 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.
At the time of valuation, further research into AFLAC revealed the company was trading below its Graham Number of $87.98. The company pays a dividend of $1.64 per share for a yield of 2.3%, putting it among the best dividend-paying stocks today. Its PEmg was 11.22, which was below the industry average of 18.78. By some methods of valuation that makes it one of the most undervalued stocks in its industry. (See the full valuation.)
Travelers Companies
Travelers Companies Inc. (TRV, Financial) 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 following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $5.48 in 2012 to an estimated $9.87 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.49% 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.
At the time of valuation, further research into Travelers Companies revealed the company was trading below its Graham Number of $134.38. The company pays a dividend of $1.95 per share for a yield of 1.7%. Its PEmg was 11.48, which was below the industry average of 16.56. By some methods of valuation that makes it one of the most undervalued stocks in its industry. (See the full valuation.)
Discover Financial Services
Discover Financial Services (DFS, Financial) 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 following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $3.98 in 2013 to an estimated $5.5 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.03% 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.
At the time of valuation, further research into Discover Financial Services revealed the company was trading above its Graham Number of $62.08. The company pays a dividend of $1.16 per share for a yield of 1.7%. Its PEmg was 12.56, which was below the industry average of 23.3. By some methods of valuation that makes it one of the most undervalued stocks in its industry. (See the full valuation.)
Franklin Resources
Franklin Resources Inc. (BEN, Financial) 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. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg 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 ModernGraham valuation model returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Franklin Resources 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 was 11.51, which was below the industry average of 19.87. By some methods of valuation that 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.)
Eastman Chemical
Eastman Chemical Co. (EMN, Financial) 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 is only concerned with 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 the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $3.14 in 2012 to an estimated $5.89 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.51% 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
Invesco Ltd. (IVZ, Financial) 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 following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg 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 ModernGraham 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? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclosure:Â The author held a long position in Invesco 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.
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