There are a number of great companies in the market today. By using the ModernGraham valuation model, I've screened more than 800 companies to select five undervalued mid-cap stocks for value investors.
Each company has been determined to be suitable for either the Defensive Investor or the Enterprising Investor according to the ModernGraham approach. 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 select companies that present a moderate (though still low) amount of risk.
Alliance Data Systems Corp. (ADS, Financial)
Alliance Data Systems 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 has no initial concerns. As a result, all value 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 $7.77 in 2015 to an estimated $15.71 for 2019. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.19% 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 above the price.
At the time of valuation, further research into Alliance Data Systems revealed the company was trading above its Graham number of $138.66. The company pays a dividend of $2.28 per share, for a yield of 1.3%. Its PEmg (price over earnings per share) was 10.89, below the industry average of 32.74, 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 $-61.7.
Alliance Data Systems performs fairly well in the ModernGraham grading system, scoring a B.
Unum Group qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. The Enterprising Investor has no initial concerns. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $2.71 in 2015 to an estimated $4.02 for 2019. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.17% 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 Unum Group revealed the company was trading below its Graham number of $68.83. The company pays a dividend of 98 cents per share, for a yield of 2.8%, putting it among the best dividend-paying stocks today. Its PEmg was 8.85, below the industry average of 32.96, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Unum Group fares extremely well in the ModernGraham grading system, scoring an A.
PVH qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg from $3.95 in 2015 to an estimated $7.54 for 2019. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.47% 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 PVH revealed the company was trading below its Graham number of $122.25. The company pays a dividend of 15 cents per share, for a yield of 0.1%. Its PEmg was 15.44, below the industry average of 44.2, 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 $-36.86.
PVH fares extremely well in the ModernGraham grading system, scoring an A-.
Packaging Corp of America (PKG, Financial)
Packaging Corp of America qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high price-book ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg from $3.21 in 2014 to an estimated $6.28 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.21% 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 Packaging Corp of America revealed the company was trading above its Graham number of $63.49. The company pays a dividend of $2.52 per share, for a yield of 2.7%, putting it among the best dividend-paying stocks today. Its PEmg was 14.93, below the industry average of 15.32, 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 $-19.74.
Packaging Corp of America performs fairly well in the ModernGraham grading system, scoring a B+.
Zions Bancorporation NA (ZION, Financial)
Zions Bancorp 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 valuation, the company appears to be undervalued after growing its EPSmg from $1.12 in 2014 to an estimated $2.67 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 4.39% 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 Zions Bancorp revealed the company was trading below its Graham number of $56.43. The company pays a dividend of 44 cents per share, for a yield of 1%. Its PEmg was 17.29, which was above the industry average of 14.65.
Zions Bancorp performs fairly well in the ModernGraham grading system, scoring a B.
What do you think? Are these companies a good value for Enterprising Investors? Is there a company you like better?Â
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.
