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Benjamin Clark
Benjamin Clark
Articles (287)  | Author's Website |

10 Most Overvalued Stocks of the S&P 500

Autodesk tops the list

There are a number of great companies in the market today, but there are also a number of companies that are vastly overvalued. Using the ModernGraham valuation model, I've selected the 10 most overvalued companies of the S&P 500.

These companies are not suitable for the Defensive Investor 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.

Autodesk Inc. (NASDAQ:ADSK)

Autodesk 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 level of debt relative to the current assets, the lack of earnings stability or growth over the last five years and the lack of dividends. 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 82 cents in 2015 to an estimated $-1.47 for 2019. This level of negative earnings does not support a positive valuation. 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 Autodesk revealed the company was trading above its Graham number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share) was -103.19, below the industry average of 56.55, 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 $-11.52.

Autodesk scores quite poorly in the ModernGraham grading system, with an overall grade of D.

AES Corp. (NYSE:AES)

AES 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 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 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 16 cents in 2014 to an estimated -4 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 AES revealed the company was trading above its Graham number of $12.73. The company pays a dividend of 48 cents per share, for a yield of 3.1%, putting it among the best dividend-paying stocks today. Its PEmg was -380.66, below the industry average of 21.62, 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 $-32.73.

AES scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

ConocoPhillips (NYSE:COP)

ConocoPhillips 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 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 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 $6.85 in 2014 to an estimated 41 cents for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 79.31% 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 ConocoPhillips revealed the company was trading above its Graham number of $47.64. The company pays a dividend of $1.06 per share, for a yield of 1.5%. Its PEmg was 167.12, which was above the industry average of 43.92. Finally, the company was trading above its NCAV of $-20.26.

ConocoPhillips scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Discovery Communications Inc. (NASDAQ:DISCA)

Discovery Communications 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, 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 $1.31 in 2014 to an estimated 88 cents for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 11.78% 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 Discovery Communications revealed the company was trading above its Graham number of $16.36. The company does not pay a dividend. Its PEmg was 32.05, which was above the industry average of 31.72. Finally, the company was trading above its NCAV of $-26.9.

Discovery Communications scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Devon Energy Corp. (NYSE:DVN)

Devon Energy 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 and price-book ratios. 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 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 $3.37 in 2014 to an estimated $-2.61 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 Devon Energy revealed the company was trading below its Graham number of $39.63. The company pays a dividend of 24 cents per share, for a yield of 0.9%. Its PEmg was -10.16, below the industry average of 41.28, 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 $-13.33.

Devon Energy receives an average overall rating in the ModernGraham grading system, scoring a C-. 

EOG Resources Inc. (NYSE:EOG)

EOG Resources 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 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 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 $3.35 in 2014 to an estimated $1.82 for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 22.22% 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 EOG Resources revealed the company was trading above its Graham number of $58.15. The company pays a dividend of 67 cents per share, for a yield of 0.7%. Its PEmg was 52.95, which was above the industry average of 43.92. Finally, the company was trading above its NCAV of $-17.68.

EOG Resources scores quite poorly in the ModernGraham grading system, with an overall grade of F. 

FirstEnergy Corp. (NYSE:FE)

FirstEnergy 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 and price-book ratios. 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 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 $1.31 in 2014 to an estimated $-2.96 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 FirstEnergy revealed the company was trading above its Graham number of $20.98. The company pays a dividend of $1.44 per share, for a yield of 3.7%, putting it among the best dividend-paying stocks today. Its PEmg was -13.12, below the industry average of 21.62, 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 $-59.35.

FirstEnergy scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Flowserve Corp. (NYSE:FLS)

Flowserve 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 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 valuation, the company appears to be overvalued after seeing its EPSmg decline from $3.21 in 2014 to an estimated $1.04 for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 14.04% 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 Flowserve revealed the company was trading above its Graham number of $16.73. The company pays a dividend of 76 cents per share, for a yield of 2%. Its PEmg was 36.58, which was above the industry average of 20.63. Finally, the company was trading above its NCAV of $-4.95.

Flowserve scores quite poorly in the ModernGraham grading system, with an overall grade of F. 

FleetCor Technologies Inc. (NYSE:FLT)

FleetCor Technologies 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 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 valuation, the company appears to be overvalued after seeing its EPSmg decline from $3.21 in 2014 to an estimated $1.76 for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 48.63% 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 FleetCor Technologies revealed the company was trading above its Graham number of $29.9. The company pays a dividend of 76 cents per share, for a yield of 0.4%. Its PEmg was 105.76, which was above the industry average of 25.74. Finally, the company was trading above its NCAV of $-4.95.

FleetCor Technologies scores quite poorly in the ModernGraham grading system, with an overall grade of F.

HCP Inc. (NYSE:HCP)

HCP 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 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 67 cents for 2018. This level of demonstrated earnings growth does not support the market's implied estimate of 17.91% 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 HCP revealed the company was trading above its Graham number of $12.24. The company pays a dividend of $1.48 per share, for a yield of 5%, putting it among the best dividend-paying stocks today. Its PEmg was 44.33, below the industry average of 70.5, 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 $-14.6.

HCP scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

What do you think? Are these companies a good value for Defensive Investors? Is there a company you like better? 

Disclosure: The author does 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 read our full disclaimer. This article first appeared on ModernGraham.

About the author:

Benjamin Clark
Benjamin is one of TipRank's top bloggers. He is the founder of ModernGraham.com, a value investing website devoted to the study and modernization of the teachings of Benjamin Graham.

Visit Benjamin Clark's Website


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