There are a number of great companies in the market today, but there are also a number of companies that are vastly overvalued by the market. By using the ModernGraham valuation model, I have selected the 10 most overvalued companies of the S&P 500.
None of these companies are suitable for the Defensive Investor and/or the Enterprising Investor. 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.
WestRock does not satisfy the requirements of either the Enterprising Investor or 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 high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $3.14 in 2014 to an estimated $2.28 for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 10.33% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into WestRock revealed the company was trading above its Graham Number of $58.32. The company pays a dividend of $1.6 per share, for a yield of 2.4%, putting it among the best dividend-paying stocks today. Its PEmg (price over earnings per share) was 29.15, above the industry average of 24.07. Finally, the company was trading above its net current asset value of $-35.95.
Tripadvisor Inc. (TRIP, Financial)
Tripadvisor does not satisfy the requirements of either the Enterprising Investor or 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 PEmg and price-book ratios. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years and the lack of dividends. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $1.41 in 2014 to an estimated 75 cents for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 25.06% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Tripadvisor revealed the company was trading above its Graham Number of $15. The company does not pay a dividend. Its PEmg was 58.63, above the industry average of 33.52. Finally, the company was trading above its NCAV of 61 cents.
Coty does not satisfy the requirements of either the Enterprising Investor or 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, the poor dividend history and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets and the lack of earnings stability over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after growing its EPSmg from 3 cents in 2014 to an estimated 3 cents for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 259% annual earnings growth over the next seven to 10 years. As a result, the valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Coty revealed the company was trading above its Graham Number of $6.26. The company pays a dividend of 65 cents per share, for a yield of 4.6%, putting it among the best dividend-paying stocks today. Its PEmg was 526.5, which was above the industry average of 28.09. Finally, the company was trading above its NCAV of $-13.8.
The Coca-Cola Co. (KO, Financial)
Coca-Cola does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last 10 years and the high PEmg and price-book ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets and the lack of earnings growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $1.85 in 2014 to an estimated $1.37 for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 11.81% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Coca-Cola revealed the company was trading above its Graham Number of $13.43. The company pays a dividend of $1.48 per share, for a yield of 3.4%, putting it among the best dividend-paying stocks today. Its PEmg was 32.11, below the industry average of 34.94, 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 $-7.94.
Abbott Laboratories (ABT, Financial)
Abbott Laboratories does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last 10 years and the high PEmg and price-book ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets and the lack of earnings growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be overvalued after seeing its EPSmg decline from $2.27 in 2014 to an estimated $1.7 for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 13.21% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Abbott Laboratories revealed the company was trading above its Graham Number of $33.71. The company pays a dividend of $1.06 per share, for a yield of 1.8%. Its PEmg was 34.92, below the industry average of 42.49, 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 $-13.9.
Under Armour Inc. (UA, Financial)
Under Armour does not satisfy the requirements of either the Enterprising Investor or 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 PEmg and price-book ratios. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years and the lack of dividends. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from 36 cents in 2014 to an estimated 20 cents for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 33.2% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Under Armour revealed the company was trading above its Graham Number of $3.51. The company does not pay a dividend. Its PEmg was 74.9, above the industry average of 40.48. Finally, the company was trading above its NCAV of 79 cents.Â
Qualcomm Inc. (QCOM, Financial)
Qualcomm does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last 10 years and the high PEmg and price-book ratios. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $3.76 in 2014 to an estimated $1.11 for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 21.7% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Qualcomm revealed the company was trading above its Graham Number of $0. The company pays a dividend of $2.2 per share, for a yield of 3.8%, putting it among the best dividend-paying stocks today. Its PEmg was 51.9, which was above the industry average of 49.78. Finally, the company was trading above its NCAV of $3.51.
Ralph Lauren Corp. (RL, Financial)
Ralph Lauren does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last 10 years and the high PEmg and price-book ratios. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $7.45 in 2014 to an estimated $2.92 for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 15.22% annual earnings growth over the next seven to 10 years. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Ralph Lauren revealed the company was trading above its Graham Number of $43.75. The company pays a dividend of $2 per share, for a yield of 1.8%. Its PEmg was 38.95, below the industry average of 49.11, 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 $9.08.
News Corp. does not satisfy the requirements of either the Enterprising Investor or 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, the poor dividend history and the high PEmg and price-book ratios. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from -19 cents in 2014 to an estimated -93 cents for 2018. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into News Corp. revealed the company was trading above its Graham Number of $0. The company pays a dividend of 20 cents per share, for a yield of 1.2%. Its PEmg was -17.42, below the industry average of 35.5, 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 $1.04.
National-Oilwell Varco Inc. (NOV, Financial)
National-Oilwell Varco does not satisfy the requirements of either the Enterprising Investor or 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 PEmg and price-book ratios. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from $5.45 in 2014 to an estimated $-1.38 for 2018. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into National-Oilwell Varco revealed the company was trading above its Graham Number of $0. The company pays a dividend of 20 cents per share, for a yield of 0.5%. Its PEmg was -27.76, below the industry average of 97.7, 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 $3.34.
Disclosure: The author held a long position in WestRock Co., 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. 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.
