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. Each company reviewed has been determined to be suitable for the Enterprising Investor.
Defensive Investors are defined as investors who 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.
Prudential Financial
Prudential Financial Inc. (PRU, 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 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 valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.17 in 2014 to an estimated $12.54 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.45% 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 Prudential revealed the company was trading below its Graham Number of $185.87. The company pays a dividend of $3 per share, for a yield of 3.1%, putting it among the best dividend-paying stocks today. Its PEmg (price over earnings per share) was 7.6, below the industry average of 30.02, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
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 should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $3.86 in 2014 to an estimated $6.07 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.22% 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 Signet Jewelers revealed the company was trading below its Graham Number of $61.99. The company pays a dividend of $1.04 per share, for a yield of 2.1%, putting it among the best dividend-paying stocks today. Its PEmg was 8.06, below the industry average of 30.22, 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 of $-3.32.
Synchrony Financial
Synchrony Financial (SYF, 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 should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from 93 cents in 2014 to an estimated $2.8 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 2% 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 Synchrony Financial revealed the company was trading below its Graham Number of $36.58. The company pays a dividend of 56 cents per share, for a yield of 1.6%. Its PEmg was 12.5, below the industry average of 22.96, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Lydall
Lydall Inc. (LDL, 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 over the last 10 years and the poor dividend history. 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 valuation, the company appears to be undervalued after growing its EPSmg from $1.05 in 2014 to an estimated $2.48 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 4.59% 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 Lydall revealed the company was trading above its Graham Number of $33.93. The company does not pay a dividend. Its PEmg was 17.67, below the industry average of 18.51, 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 $5.29.
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 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. As a result, all Enterprising Investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $6.13 in 2014 to an estimated $10.84 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.41% 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 LyondellBasell revealed the company was trading above its Graham Number of $77.64. The company pays a dividend of $3.55 per share, for a yield of 4.3%, putting it among the best dividend-paying stocks today. Its PEmg was 7.68, below the industry average of 20.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-16.01. (See the full valuation)
Mohawk Industries
Mohawk Industries Inc. (MHK, 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 lack of dividends. As a result, all Enterprising Investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $4.94 in 2014 to an estimated $12.62 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 4.03% 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 Mohawk Industries revealed the company was trading above its Graham Number of $180.11. The company does not pay a dividend. Its PEmg was 16.56, 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 $-12.35.Ă‚
Tyson Foods
Tyson Foods Inc. (TSN, Financial) 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 valuation, the company appears to be undervalued after growing its EPSmg from $2.13 in 2014 to an estimated $5.52 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.07% 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 Tyson Foods revealed the company was trading below its Graham Number of $73.4. The company pays a dividend of 90 cents per share, for a yield of 1.3%. Its PEmg was 12.65, below the industry average of 24.35, 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 $-26.88.Ă‚
Lincoln NationalÂ
Lincoln National Corp. (LNC, 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 Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $4.25 in 2014 to an estimated $7.01 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.58% 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 Lincoln National revealed the company was trading below its Graham Number of $117.31. The company pays a dividend of 87 cents per share, for a yield of 1.7%. Its PEmg was 7.33, below the industry average of 30.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Alliance Data SystemsÂ
Alliance Data Systems Corp. (ADS, Financial) is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history and the high price-book ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $6.88 in 2014 to an estimated $14.23 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.11% 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 Alliance Data Systems revealed the company was trading above its Graham Number of $128.46. The company pays a dividend of $2.08 per share, for a yield of 1%. Its PEmg was 14.72, below the industry average of 33.86, 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 $-70.39.
Citizens Financial Group
Citizens Financial Group Inc. (CFG, 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 should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from -89 cents in 2014 to an estimated $2.67 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.59% 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 Citizens Financial revealed the company was trading below its Graham Number of $55.04. The company pays a dividend of 64 cents per share, for a yield of 1.5%. Its PEmg was 15.67, below the industry average of 22.06, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
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. This article first appeared on ModernGraham.
