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 Graham's methods. The companies on this list pass the rigorous requirements of either the Defensive Investor or the Enterprising Investor and are either fairly valued or undervalued by the market.
Aspen Insurance Holdings
Aspen Insurance Holdings Ltd. (AHL, 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. The Enterprising Investor has no initial concerns. 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 $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, based on Graham's formula, 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 (price over earnings per share - ModernGraham) 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.)
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. 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 $3.63 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 returns an estimate of intrinsic value above the price. (See the full valuation.)
Fossil Group
Fossil Group Inc. (FOSL, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size and poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. 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 $4.26 in 2012 to an estimated $4.36 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.81% 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 Fossil Group revealed the company was trading above its Graham Number of $25.49. The company does not pay a dividend. Its PEmg was 6.88, which was below the industry average of 49.91. 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 64 cents. (See the full valuation.)
Gilead Sciences
Gilead Sciences Inc. (GILD, Financial) 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. 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.)
Kelly Services
Kelly Services Inc. (KELYA, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last 10 years and the poor dividend history. The Enterprising Investor has no initial concerns. 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 $1.1 in 2013 to an estimated $1.8 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.74% 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 Kelly Services revealed the company was trading below its Graham Number of $30.13. The company pays a dividend of 28 cents per share for a yield of 1.3%. Its PEmg was 11.99, which was below the industry average of 21.9. 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 $5.19. (See the full valuation.)
LyondellBasell Industries
LyondellBasell Industries NV (LYB, 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, 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. 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.)
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. 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.)
Seagate Technology
Seagate Technology PLC (STX, 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 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. 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 $2.39 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.)
Spok Holdings
Spok Holdings Inc. (SPOK, Financial) 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 and the poor dividend history. The Enterprising Investor has no initial concerns. 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 $2.08 in 2012 to an estimated $2.83 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.96% 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 Spok Holdings revealed the company was trading below its Graham Number of $38.13. The company pays a dividend of 50 cents per share for a yield of 2.7%, putting it among the best dividend-paying stocks today. Its PEmg was 6.58, which was below the industry average of 68.5. 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 $4.56. (See the full valuation.)
Starwood Property Trust
Starwood Property Trust Inc. (STWD, 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. 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 $1.17 in 2012 to an estimated $1.98 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.4% 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.
At the time of valuation further research into Starwood Property Trust revealed the company was trading below its Graham Number of $27.64. The company pays a dividend of $1.92 per share for a yield of 8.6%, putting it among the best dividend-paying stocks today. Its PEmg was 11.3, 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. (See the full valuation.)
Disclosure:Â The author held a long position in Starwood Property Trust 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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