There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've screened the 800-plus companies reviewed by ModernGraham to select five mid-cap undervalued companies for value investors.
Each company has been determined to be suitable for either the Defensive Investor or the Enterprising 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.
Navient
Navient Corp. (NAVI, Financial) 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.)
Kors Holdings
Kors Holdings Ltd. (KORS, Financial) 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 price-book (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.)
PulteGroup
PulteGroup Inc. (PHM, Financial) 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.)
Tesoro
Tesoro Corp. (TSO, Financial) 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.)
Signet Jewelers
Signet Jewelers Ltd. (SIG, Financial) 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 $2.84 in 2013 to an estimated $5.77 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.39% 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 Signet Jewelers revealed the company was trading above its Graham Number of $71.41. The company pays a dividend of $1 per share for a yield of 1.1%. Its PEmg was 15.29, which was below the industry average of 26.36. 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 $4.06. (See the full valuation.)
Disclosure:Â 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.
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