Stocks

15 Best Undervalued Stocks of the Week – 8/20/16

I evaluated 35 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 BenjaminGraham’s value investing formulas in order to determine an intrinsic value for each. Out of those 35 companies, only 15 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors.  Therefore, these 5 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:

Baxter International Inc (BAX)

Baxter International Inc 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 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 Undervalued after growing its EPSmg (normalized earnings) from $3.6 in 2012 to an estimated $5.21 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.38% 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 Baxter International Inc revealed the company was trading below its Graham Number of $56.99. The company pays a dividend of $0.48 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 9.25, which was below the industry average of 40.07, 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 $-1.18.  (See the full valuation)

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Discover Financial Services (DFS)

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 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 $3.26 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.37% 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.

At the time of valuation, further research into Discover Financial Services revealed the company was trading above its Graham Number of $57.8. The company pays a dividend of $1.12 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 11.23, which was below the industry average of 20.62, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

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D.R. Horton Inc (DHI)

D.R. Horton, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years. 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 $0.35 in 2012 to an estimated $1.98 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.86% 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 D.R. Horton, Inc. revealed the company was trading above its Graham Number of $30.35. The company pays a dividend of $0.3 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 16.22, which was below the industry average of 28.02, 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 $12.24.  (See the full valuation)

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Gap Inc (GPS)

Gap Inc 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 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 Undervalued after growing its EPSmg (normalized earnings) from $1.87 in 2013 to an estimated $2.3 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.25% 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 Gap Inc revealed the company was trading above its Graham Number of $16.15. The company pays a dividend of $0.92 per share, for a yield of 3.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.99, which was below the industry average of 26.26, 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 $-2.61.  (See the full valuation)

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PPG Industries Inc (PPG)

PPG Industries, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, 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 $2.63 in 2012 to an estimated $6.38 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.94% 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 PPG Industries, Inc. revealed the company was trading above its Graham Number of $49.66. The company pays a dividend of $1.48 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 16.37, which was below the industry average of 28.02, 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 $-17.82.  (See the full valuation)

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PVH Corp (PVH)

PVH Corp 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 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 $3.65 in 2013 to an estimated $5.68 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.91% 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 PVH Corp revealed the company was trading above its Graham Number of $93.46. The company pays a dividend of $0.15 per share, for a yield of 0.1% Its PEmg (price over earnings per share – ModernGraham) was 18.32, which was below the industry average of 26.26, 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 $-42.67.  (See the full valuation)

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Qualcomm Inc (QCOM)

QUALCOMM, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio. 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 Undervalued after growing its EPSmg (normalized earnings) from $2.49 in 2012 to an estimated $3.82 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4% 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 QUALCOMM, Inc. revealed the company was trading above its Graham Number of $42.34. The company pays a dividend of $1.97 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 16.5, which was below the industry average of 35.13, 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 $0.57.  (See the full valuation)

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U.S. Bancorp (USB)

U.S. 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 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 $2.19 in 2012 to an estimated $3.11 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.67% 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.

At the time of valuation, further research into U.S. Bancorp revealed the company was trading above its Graham Number of $41.67. The company pays a dividend of $1.02 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.84, which was above the industry average of 13.43.  (See the full valuation)

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The Good

The following companies were found to be suitable for the Defensive Investor or Enterprising Investor andFairly Valued:

Akamai Technologies Inc (AKAM)

Akamai Technologies, Inc. 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 is only concerned with the lack of dividends. 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 in 2012 to an estimated $1.81 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 10.14% 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 Akamai Technologies, Inc. revealed the company was trading above its Graham Number of $28.56. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 28.79, which was below the industry average of 35.13, 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 $1.4.  (See the full valuation)

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Anthem Inc (ANTM)

Anthem Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with 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 Fairly Valued after growing its EPSmg (normalized earnings) from $7.68 in 2012 to an estimated $8.94 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 2.96% 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 Anthem Inc revealed the company was trading below its Graham Number of $136.63. The company pays a dividend of $2.55 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 14.42, 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)

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Cisco Systems Inc (CSCO)

Cisco Systems, Inc. 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 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 $1.3 in 2012 to an estimated $1.83 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 4.21% 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 Cisco Systems, Inc. revealed the company was trading above its Graham Number of $24.42. The company pays a dividend of $0.89 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.91, which was below the industry average of 36.31, 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 $4.4.  (See the full valuation)

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PACCAR Inc (PCAR)

PACCAR Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio. 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 $2.28 in 2012 to an estimated $3.09 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 5.31% 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 PACCAR Inc revealed the company was trading above its Graham Number of $24.82. The company pays a dividend of $0.96 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 19.11, which was below the industry average of 20.76, 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 $-0.09.  (See the full valuation)

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Quanta Services Inc (PWR)

Quanta Services Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. 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 $0.96 in 2012 to an estimated $1.45 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 4.79% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Quanta Services Inc revealed the company was trading above its Graham Number of $24.64. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 18.08, which was below the industry average of 28.02, 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 $0.95.  (See the full valuation)

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Torchmark Corporation (TMK)

Torchmark Corporation 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 $2.99 in 2012 to an estimated $4.12 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 3.32% 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 Torchmark Corporation revealed the company was trading below its Graham Number of $62.9. The company pays a dividend of $0.55 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 15.14, 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)

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W.W. Grainger Inc (GWW)

W W Grainger Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $8.13 in 2012 to an estimated $11.14 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 6.03% 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 W W Grainger Inc revealed the company was trading above its Graham Number of $93.2. The company pays a dividend of $4.73 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.55, which was below the industry average of 20.76, 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 $-10.45.  (See the full valuation)

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Disclaimer:

The author held a long position in WestRock Inc (WRK) 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.