I evaluated 30 different companies this week to determine whether they are suitable for Defensive Investors, those unwilling to do substantial research, or Enterprising Investors, those who are willing to do such research. I also put each company through the ModernGraham valuation model based on Benjamin Graham’s value investing formulas in order to determine an intrinsic value for each. Out of those 30 companies, only 7 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors. Therefore, these 7 companies are the best undervalued stocks of the week.
The Elite
The following companies were found to be suitable for either the Defensive Investor or Enterprising Investor and undervalued:
CBS Corporation (CBS)
CBS Corporation is a mass media company.
CBS Corporation 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 ten years, and the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.4 in 2012 to an estimated $3.69 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.8% annual earnings growth over the next 7-10 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 CBS Corporation revealed the company was trading above its Graham Number of $32.64. The company pays a dividend of $0.6 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 14.1, which was below the industry average of 40.02, 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 (NCAV) of $-27.81. (See the full valuation)
Graham Holdings Co (GHC)
Graham Holdings Company is a diversified education and media company.
Graham Holdings Co 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 ten years, and the poor dividend history. The Enterprising Investor is only concerned with the lack of earnings stability over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $17.69 in 2012 to an estimated $34.81 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.79% annual earnings growth over the next 7-10 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 Graham Holdings Co revealed the company was trading above its Graham Number of $0. The company pays a dividend of $6.22 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 14.08, which was below the industry average of 40.02, 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 (NCAV) of $-41.04. (See the full valuation)
Marathon Petroleum Corp (MPC)
Marathon Petroleum Corporation is engaged in petroleum product refining, marketing, retail and transportation businesses in the United States and the east of the Mississippi.
Marathon Petroleum Corp 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 over the last ten 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 following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.71 in 2012 to an estimated $3.67 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.51% annual earnings growth over the next 7-10 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 Marathon Petroleum Corp revealed the company was trading above its Graham Number of $32.64. The company pays a dividend of $1.28 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.52, which was below the industry average of 55.24, 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 (NCAV) of $-38.3. (See the full valuation)
Navient Corporation is a loan management, servicing and asset recovery company.
Navient Corp 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 ten 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 a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.63 in 2012 to an estimated $2.39 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.25% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Navient Corp revealed the company was trading below its Graham Number of $21.98. The company pays a dividend of $0.64 per share, for a yield of 4.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 6.01, which was below the industry average of 19.87, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
The Good
The following companies were found to be suitable for the Defensive Investor or Enterprising Investor and Fairly Valued:
Applied Materials Inc (AMAT)
Applied Materials, Inc. (Applied) provides manufacturing equipment, services and software to the semiconductor, display, solar photovoltaic (PV) and related industries across the world.
Applied Materials, Inc. 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 ten years, and the high PEmg and PB ratios. 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 a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.57 in 2012 to an estimated $1.06 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 9.93% annual earnings growth over the next 7-10 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 Applied Materials, Inc. revealed the company was trading above its Graham Number of $15.25. The company pays a dividend of $0.4 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 28.36, which was above the industry average of 22.64. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.47. (See the full valuation)
Principal Financial Group Inc (PFG)
Principal Financial Group, Inc. is an investment management company.
Principal Financial Group Inc 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 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 $2.13 in 2012 to an estimated $3.04 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 3.83% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Principal Financial Group Inc revealed the company was trading above its Graham Number of $40.4. The company pays a dividend of $1.53 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.15, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
Tractor Supply Company (TSCO)
Tractor Supply Company is an operator of rural lifestyle retail stores in the United States.
Tractor Supply Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. 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 a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.41 in 2012 to an estimated $2.87 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 10.41% annual earnings growth over the next 7-10 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 Tractor Supply Company revealed the company was trading above its Graham Number of $28.88. The company pays a dividend of $0.84 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 29.32, which was below the industry average of 49.91, 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 (NCAV) of $3.8. (See the full valuation)
Disclaimer:
The author held a long position in 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; 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.
