Out of the multitude of companies, which ones would legendary value investor Benjamin Graham buy today? I've compiled 10 great companies that fit the ModernGraham criteria, based on Graham's methods. The companies in this list pass the rigorous requirements of either the Defensive Investor or the Enterprising Investor and are either fairly valued or undervalued by the market.
Citizens Financial Group Inc. (CFG, Financial)
Citizens Financial Group 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 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 a loss of 8 cents in 2015 to an estimated $3.21 for 2019. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.47% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on Graham's formula, 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 $60.22. The company pays a dividend of 98 cents per share, for a yield of 2.7%, putting it among the best dividend-paying stocks today. Its PEmg (price over earnings per share) was 11.44, below the industry average of 16.24, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Citizens Financial fares extremely well in the ModernGraham grading system, scoring an A-.
Eastman Chemical Co. (EMN, Financial)
Eastman Chemical 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 $5.02 in 2014 to an estimated $7.69 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.46% 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 Eastman Chemical revealed the company was trading below its Graham number of $86.45. The company pays a dividend of $2.09 per share, for a yield of 2.9%, putting it among the best dividend-paying stocks today. Its PEmg was 9.42, 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 net current asset value of $-47.19.
Eastman Chemical fares extremely well in the ModernGraham grading system, scoring an A.
Gilead Sciences Inc. (GILD, Financial)
Gilead Sciences 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 $3.61 in 2014 to an estimated $6.87 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.69% 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 Gilead Sciences revealed the company was trading above its Graham number of $44.37. The company pays a dividend of $2.08 per share, for a yield of 3.1%, putting it among the best dividend-paying stocks today. Its PEmg was 9.88, below the industry average of 35.4, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-4.88.
Gilead Sciences performs fairly well in the ModernGraham grading system, scoring a B+.
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.
Lincoln National Corp. (LNC, Financial)
Lincoln National 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.
Lincoln National performs fairly well in the ModernGraham grading system, scoring a B+.
LyondellBasell Industries NV (LYB, Financial)
LyondellBasell 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.
LyondellBasell performs fairly well in the ModernGraham grading system, scoring a B.
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 should feel comfortable proceeding with the analysis.
As for valuation, the company appears to be fairly valued after growing its EPSmg 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 valuation model 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 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 NCAV of $-19.38.
Macy's fares extremely well in the ModernGraham grading system, scoring an A-.
Principal Financial Group Inc. (PFG, Financial)
Principal Financial 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 $2.9 in 2014 to an estimated $5.72 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.29% 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 Principal Financial revealed the company was trading below its Graham number of $76.24. The company pays a dividend of $1.87 per share, for a yield of 4.1%, putting it among the best dividend-paying stocks today. Its PEmg was 7.92, below the industry average of 30.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Principal Financial Group fares extremely well in the ModernGraham grading system, scoring an A.
Synchrony Financial (SYF, Financial)
Synchrony 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 a valuation, the company appears to be undervalued after growing its EPSmg from $2.22 in 2015 to an estimated $3.36 for 2019. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.7% 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 $43.03. The company pays a dividend of 72 cents per share, for a yield of 2.2%, putting it among the best dividend-paying stocks today. Its PEmg was 9.91, below the industry average of 21.22, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Synchrony Financial 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.
Disclosure: The author held a long position in Invesco Ltd., 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; 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 review our detailed disclaimer. This article first appeared on ModernGraham.
