While ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself. With that in mind, this article will take a brief look at the best companies of the auto industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.
Out of the more than 560 companies reviewed by ModernGraham, 20 were identified as being closely related to the auto industry. Of those, only none are suitable for the Defensive Investor, seven are suitable for the Enterprising Investor, and the remaining thirteen are considered speculative at this time. Excluding any extreme outliers, the average company was rated as being priced at 154.28% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 26.64. The industry as a whole, therefore would appear to be undervalued, particularly in comparison to the market (see Mr. Market’s Mental State).
The following companies have been rated as undervalued and suitable for either the Defensive Investor or the Enterprising Investor:
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Keurig Green Mountain Inc (GMCR)
Keurig Green Mountain Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the short dividend record and the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.71 in 2011 to an estimated $3.08 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.86% 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 above the price. (See the full valuation)
The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:
Mead Johnson Nutrition CO (MJN)
Mead Johnson Nutrition qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the short history as a stand-alone company as well as the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.28 in 2011 to an estimated $3.37 for 2015. This level of demonstrated earnings growth supports the market’s implied estimate of 7.79% 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. (See the full valuation)
The Full List
To view the MG Value and PEmg information, you must be logged in as a premium member. Clicking on the company name will take you to the company’s latest valuation.
For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.
|Ticker||Name with Link||Investor Type||Latest Valuation Date||MG Value||Recent Price||Price as a percent of Value||PEmg Ratio||Div. Yield|
|ADM||Archer Daniels Midland Company||E||8/6/2015||—||$46.80||—||—||2.39%|
|BGS||B&G Foods, Inc.||E||9/24/2015||—||$36.50||—||—||3.84%|
|CAG||ConAgra Foods Inc||S||8/15/2015||—||$40.44||—||—||2.47%|
|CCE||Coca-Cola Enterprises Inc||S||9/1/2015||—||$51.43||—||—||2.18%|
|CPB||Campbell Soup Company||S||1/26/2015||—||$50.79||—||—||2.46%|
|DPS||Dr Pepper Snapple Group Inc.||S||9/11/2015||—||$90.93||—||—||2.11%|
|GIS||General Mills, Inc.||S||4/3/2015||—||$58.12||—||—||3.03%|
|GMCR||Keurig Green Mountain Inc||E||10/13/2015||—||$52.91||—||—||2.17%|
|HRL||Hormel Foods Corp||E||9/21/2015||—||$67.63||—||—||1.48%|
|KO||The Coca-Cola Co||S||3/3/2015||—||$42.71||—||—||3.09%|
|MDLZ||Mondelez International Inc||S||6/24/2015||—||$46.40||—||—||1.47%|
|MJN||Mead Johnson Nutrition CO||E||8/20/2015||—||$79.78||—||—||2.07%|
|MKC||McCormick & Company, Incorporated||S||8/15/2015||—||$84.30||—||—||1.90%|
|MNST||Monster Beverage Corporation||E||10/6/2015||—||$141.34||—||—||N/A|
|SJM||J M Smucker Co||E||10/20/2015||—||$116.35||—||—||2.30%|
|TSN||Tyson Foods, Inc.||S||6/30/2015||—||$44.96||—||—||0.89%|
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.
- The Best Companies of the Food Processing Industry – June 2015
- Keurig Green Mountain Inc. Valuation – October 2015 Update $GMCR
- Mead Johnson Nutrition Company Quarterly Valuation – October 2014 $MJN