There are a number of great companies in the market today. By using the ModernGraham valuation model, I've selected the 10 lowest PEmg (price-normalized earnings) companies of those reviewed. Each company has been determined to be undervalued or fairly valued and suitable for the Defensive 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 to select companies that present a moderate (though still low) amount of risk.
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 a 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 the Benjamin Graham 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 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.
Principal Financial Group Inc. (PFG, Financial)
Principal Financial 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 $2.9 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 Group 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.
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+.
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 NCAV of $-47.19.
Eastman Chemical ares extremely well in the ModernGraham grading system, scoring an A.
Discover Financial Services (DFS, Financial)
Discover Financial Services 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 $4.87 in 2015 to an estimated $7.09 for 2019. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.82% 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 Discover Financial Services revealed the company was trading below its Graham number of $77.91. The company pays a dividend of $1.5 per share, for a yield of 2.1%, putting it among the best dividend-paying stocks today. Its PEmg was 10.13, below the industry average of 31.76, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Discover Financial Services fares extremely well in the ModernGraham grading system, scoring an A.
Molson Coors Brewing Co. (TAP, Financial)
Molson Coors 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 undervalued after growing its EPSmg from $2.97 in 2014 to an estimated $5.89 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.12% 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 Molson Coors Brewing revealed the company was trading below its Graham number of $86.77. The company pays a dividend of $1.64 per share, for a yield of 2.6%, putting it among the best dividend-paying stocks today. Its PEmg was 10.75, below the industry average of 19.84, 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 $-62.64.
Molson Coors Brewing fares extremely well in the ModernGraham grading system, scoring an A.
AT&T Inc. (T)
AT&T 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 undervalued after growing its EPSmg from $1.89 in 2014 to an estimated $3.06 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.53% 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 AT&T revealed the company was trading below its Graham number of $38.89. The company pays a dividend of $1.97 per share, for a yield of 6.7%, putting it among the best dividend-paying stocks today. Its PEmg was 9.56, below the industry average of 25.67, 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 $-40.55.
AT&T fares extremely well in the ModernGraham grading system, scoring an A.
Fifth Third Bancorp (FITB, Financial)
Fifth Third Bancorp 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 $1.62 in 2014 to an estimated $2.41 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.35% 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 Fifth Third Bancorp revealed the company was trading below its Graham Number of $36.08. The company pays a dividend of 60 cents per share, for a yield of 2.2%, putting it among the best dividend-paying stocks today. Its PEmg was 11.21, below the industry average of 14.65, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Fifth Third Bancorp fares extremely well in the ModernGraham grading system, scoring an A.
What do you think? Are these companies a good value for Defensive Investors? Is there a company you like better?
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; 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.
