I evaluated 29 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 29 companies, only 5 were found to be undervalued or fairly valued and suitable for Defensive and/or Enterprising Investors. Therefore, these 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:
LaSalle Hotel Properties (LHO)
LaSalle Hotel Properties 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 poor dividend history, and the high PEmg ratio. 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 $0.34 in 2013 to an estimated $1.35 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.66% 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 LaSalle Hotel Properties revealed the company was trading above its Graham Number of $5.83. The company pays a dividend of $3.01 per share, for a yield of 10.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 21.82, which was below the industry average of 31.91, which by some methods of valuation makes it one of the most undervalued stocks in its industry. (See the full valuation)
LGI Homes Inc (LGIH)
LGI Homes Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability over the last ten years, and the 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 Undervalued after growing its EPSmg (normalized earnings) from $0.39 in 2013 to an estimated $2.76 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.6% 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 LGI Homes Inc revealed the company was trading below its Graham Number of $36.13. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 11.7, which was below the industry average of 28.49, 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 $15.24. (See the full valuation)
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 $3.33 in 2013 to an estimated $4.38 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 4.7% 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 above its Graham Number of $63.73. The company pays a dividend of $0.56 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 17.9, which was below the industry average of 18.78, 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:
Schweitzer-Mauduit International Inc (SWM)
Schweitzer-Mauduit International, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the small size. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $2.33 in 2013 to an estimated $2.91 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 2.71% 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 Schweitzer-Mauduit International, Inc. revealed the company was trading above its Graham Number of $34.35. The company pays a dividend of $1.62 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.92, which was below the industry average of 28.3, 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 $-9.88. (See the full valuation)
Standex Int’l Corp (SXI)
Standex Int’l Corp. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, 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 $2.64 in 2013 to an estimated $4.06 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 7.77% 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 Standex Int’l Corp. revealed the company was trading above its Graham Number of $53.86. The company pays a dividend of $0.58 per share, for a yield of 0.6% Its PEmg (price over earnings per share – ModernGraham) was 24.04, which was above the industry average of 22.25. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.04. (See the full valuation)
Disclaimer:
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; 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.
