There are a number of great companies in the market today. By using the ModernGraham valuation model, I've selected some of the lowest price-earnings and undervalued mid-cap companies. The model is based on the full teachings of Benjamin Graham. All of these companies are suitable for the Defensive Investor or 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 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.
Macy's 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 has concerns regarding the level of debt relative to the current assets. 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 fairly valued after growing its EPSmg (normalized earnings) from $3.61 in 2015 to an estimated $3.68 for 2019. This level of demonstrated earnings growth supports the market's implied estimate of 0.75% annual earnings loss over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Graham's value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Macy's revealed the company was trading below its Graham number of $39.21. The company pays a dividend of $1.51 per share, for a yield of 5.9%, putting it among the best dividend-paying stocks today. Its PEmg (price over earnings per share) was 7.01, below the industry average of 25.4, 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 $-19.38.
Macy's fares extremely well in the ModernGraham grading system, scoring an A-.
Invesco 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 $1.89 in 2014 to an estimated $2.39 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.65% 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 Invesco revealed the company was trading below its Graham number of $33.89. The company pays a dividend of $1.15 per share, for a yield of 6.7%, putting it among the best dividend-paying stocks today. Its PEmg was 7.21, below the industry average of 18, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Invesco fares extremely well in the ModernGraham grading system, scoring an A.
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.
BorgWarner Inc. (BWA, Financial)
BorgWarner is suitable for the Enterprising Investor, but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio and 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 $2.58 in 2015 to an estimated $3.51 for 2019. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.72% 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.
At the time of valuation, further research into BorgWarner revealed the company was trading below its Graham number of $43.32. The company pays a dividend of 68 cents per share, for a yield of 1.6%. Its PEmg was 11.93, below the industry average of 21.23, 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 $-9.33.
BorgWarner performs fairly well in the ModernGraham grading system, scoring a B+.
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 should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be undervalued after growing its EPSmg 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 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 $138.66. The company pays a dividend of $2.28 per share, for a yield of 1.3%. Its PEmg 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 NCAV of $-61.7.
Alliance Data Systems 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 held a long position in IVZ, 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. 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.
