There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I have selected the 10 most undervalued companies. Each company has been determined to be suitable for 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. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.
Navient Corp. (NAVI, Financial)
Navient 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 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, below the industry average of 19.87, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation.)
Gilead Sciences Inc. (GILD, Financial)
Gilead Sciences 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 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 valuation model returns an estimate of intrinsic value above the price. (See the full valuation.)
Kors Holdings Ltd. (KORS, Financial)
Kors Holdings 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 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 valuation model returns an estimate of intrinsic value above the price. (See the full valuation.)
Linamar Corp. (TSE:LNR)
Linamar 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 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 from $2.22 in 2013 to an estimated $6.93 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.1% 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 Linamar revealed the company was trading below its Graham Number of $83.15. The company pays a dividend of 40 cents per share, for a yield of 0.7% Its PEmg was 8.7, below the industry average of 18.47, 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 $-7.49. (See the full valuation)
LyondellBasell Industries NV (LYB, Financial)
LyondellBasell 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 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 valuation model returns an estimate of intrinsic value above the price. (See the full valuation.)
Signet Jewelers Ltd. (SIG, Financial)
Signet Jewelers 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 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 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, below the industry average of 26.36, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $4.06. (See the full valuation.)
KB Home is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size and insufficient earnings stability or growth 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 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 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, below the industry average of 28.49, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $8.5. (See the full valuation)
Foot Locker Inc. (FL, Financial)
Foot Locker 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 high P/B ratio. 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 from $2.16 in 2014 to an estimated $4.47 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 4.23% 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 Foot Locker revealed the company was trading above its Graham Number of $48.72. The company pays a dividend of $1.1 per share, for a yield of 1.5%. Its PEmg was 16.96, below the industry average of 50.09, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $11.28. (See the full valuation.)
Aspen Insurance Holdings Ltd. (AHL, Financial)
Aspen Insurance 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 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 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, below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation.)
PulteGroup Inc. (PHM, Financial)
PulteGroup 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 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 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 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 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 and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions. Please also read our full disclaimer.
