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Benjamin Clark
Benjamin Clark
Articles (253)  | Author's Website |

10 Undervalued Stocks for the Enterprising Investor

ModernGraham identifies the best options

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected the 10 most undervalued companies reviewed by ModernGraham. Each company has been determined to be suitable for the Enterprising Investor according to the ModernGraham approach.

Copy of 10 most undervalued enterprisingDefensive 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. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

Navient

Navient Corp. (NASDAQ:NAVI) 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 and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising 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 63 cents in 2012 to an estimated $2.39 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.25% annual earnings loss 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.

At the time of valuation, further research into Navient revealed the company was trading below its Graham Number of $21.98. The company pays a dividend of 64 cents per share for a yield of 4.5%, putting it among the best dividend-paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 6.01, 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. (See the full valuation.)

NAVI charts August 2016

KB Home

KB Home (NYSE:KBH) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last 10 years. The Enterprising Investor has no initial concerns. As a result, all Enterprising 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 -72 cents in 2013 to an estimated $2.2 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.52% annual earnings loss 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 KB Home revealed the company was trading below its Graham Number of $25.21. The company pays a dividend of 10 cents per share for a yield of 0.6%. Its PEmg was 7.47, which was below the industry average of 28.49. 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 $8.5. (See the full valuation.)

Gilead Sciences

Gilead Sciences Inc. (NASDAQ:GILD) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history and the high price-book (P/B) 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 should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg from $1.61 in 2012 to an estimated $8.69 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.72% 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.)

GILD charts July 2016

Kors Holdings

Kors Holdings Ltd. (NYSE:KORS) 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 poor dividend history and the high P/B ratio. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising 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 96 cents in 2013 to an estimated $4.07 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.92% 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.)

KORS charts July 2016

PulteGroup

PulteGroup Inc. (NYSE:PHM) is suitable 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 poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising 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 $-1.46 in 2012 to an estimated $2.06 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.7% 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.)

PHM charts July 2016

LyondellBasell Industries

LyondellBasell Industries NV (NYSE:LYB) is suitable 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 poor dividend history and the high P/B 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 should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg from $-944.17 in 2012 to an estimated $8.48 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.4% 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.)

LYB charts June 2016

Western Refining

Western Refining Inc. (NYSE:WNR) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability 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 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 $1.03 in 2012 to an estimated $3.13 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.97% annual earnings loss 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)

WNR charts June 2016

Tesoro

Tesoro Corp. (TSO) 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 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 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 $2.72 in 2012 to an estimated $7.14 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.59% 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 Tesoro revealed the company was trading above its Graham Number of $75.72. The company pays a dividend of $2.05 per share for a yield of 2.5%, putting it among the best dividend-paying stocks today. Its PEmg was 11.67, which was below the industry average of 69.19. 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 $-62.03. (See the full valuation.)

Valero Energy

Valero Energy Corp. (NYSE:VLO) 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 over the last 10 years. The Enterprising Investor has no initial concerns. As a result, all Enterprising 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 $1.71 in 2012 to an estimated $5.39 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.84% 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 Valero Energy revealed the company was trading above its Graham Number of $54.08. The company pays a dividend of $2.1 per share for a yield of 3.8%, putting it among the best dividend-paying stocks today. Its PEmg was 10.18, which was below the industry average of 55.24. 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 $-18.5. (See the full valuation.)

VLO charts August 2016

Aspen Insurance Holdings

Aspen Insurance Holdings Ltd. (NYSE:AHL) is suitable 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 Enterprising Investor has no initial concerns. As a result, all Enterprising 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 $2.19 in 2012 to an estimated $4.51 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.7% 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 Aspen Insurance Holdings revealed the company was trading below its Graham Number of $82.44. The company pays a dividend of 86 cents per share for a yield of 1.6%. Its PEmg was 11.91, 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.)

What do you think? Are these companies good values for 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 Western Refining 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, and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions. Please also read our full disclaimer. This article first appeared on ModernGraham.

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About the author:

Benjamin Clark
Benjamin is one of TipRank's top bloggers. He is the founder of ModernGraham.com, a value investing website devoted to the study and modernization of the teachings of Benjamin Graham.

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