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For this article, I will be screening for companies that are undervalued, have a high CEO approval rating, pay a large dividend, have dividend growth potential, and have projected strong long-term earnings growth. I have written articles on dividend growth stocks before, but in this article, I will incorporate a new tool I recently found, and that tool is CEO approval ratings. I recently was watching Bloomberg and they were talking about the retirement of Steve Ballmer from Microsoft with a person from Glassdoor and they noted that his approval rating was 47%, which is significantly lower than other technology CEOs. My reasoning was kind of like the phrase "Happy wife, happy life" if a company treats its employees well that could lead to the company attracting quality employees with quality skills. While this is not always true, I believe when combined with fundamentals, and valuation, that it could provide quality returns.

Step 1: Screen Fundamentals

To get my initial list of stocks that meet my fundamental criteria, I will be using the Zacks.com stock screener, using the criteria below. I chose these criteria because I wanted to focus on large capitalization companies which paid a dividend that was greater than a 10-year treasury bond, have a history of dividend growth, and are projected to have future earnings growth as well.

  • S&P 500: Yes
  • Dividend Yield: >3%
  • 5 yr Hist. Div Growth: >10%
  • Long-term growth est.: >10%

Running the screen using the criteria above, I found that nine companies passed my screen, and in the table below with data from the screen.

Company Name

Ticker

Div. Yield %

5 Yr Hist. Div. Growth %

Long-Term Growth Consensus Est.

ENSCO PLC

(ESV)

3.56

121.18099

17.87

FREEPT MC COP-B

(FCX)

4.1

28.19799

12.2

HASBRO INC

(HAS)

3.51

17.645

10.1

KLA-TENCOR CORP

(KLAC)

3.28

31.04

12.65

LORILLARD CO

(LO)

5.23

15.574

10.42

MOLEX INC

(MOLX)

3.27

11.31599

14.43

PHILIP MORRIS

(PM)

4.1

12.142

10.02

SAFEWAY INC

(SWY)

3.1

20.35099

14.41

WILLIAMS COS

(WMB)

3.89

34.80899

14

Step 2: Calculate Fair Value

For each stock in the table above, I calculated the fair value using a DCF calculator, with data for earnings and growth coming from Zacks data above, benchmark data from longrundata.com, and CPI data from the BLS. In addition, below I have listed the assumptions that I used for the calculation for each stocks fair value in the calculator.

Earnings grow for next: 5 years

Level off: to 1% after

Benchmark return: 10 yr annualized SPY return of 7.13%+2.0% inflation= 9.13% benchmark

The table below shows the comparison between the current price for each of the stocks that passed my fundamental screen, and the fair value for each. Out of my starting list of nine stocks, eight are undervalued based on my fair value estimates using the DCF calculator.

EPS

Est. Growth

Current Price

Fair Value

Under/Over?

% Undervalued

ESV

5.76

17.87%

56.21

141.69

Undervalued

152.07%

FCX

2.68

12.20%

30.52

52.82

Undervalued

73.07%

HAS

2.78

10.10%

45.66

50.37

Undervalued

10.32%

KLAC

3.3

12.65%

55.34

66.22

Undervalued

19.66%

LO

2.98

10.42%

42.42

54.7

Undervalued

28.95%

MOLX

1.45

14.43%

29.25

31.21

Undervalued

6.70%

PM

5.21

10.02%

84.15

94.1

Undervalued

11.82%

SWY

2.02

14.41%

26.1

43.45

Undervalued

66.48%

WMB

0.91

14.00%

36.21

19.26

Overvalued

-46.81%

Step 3: CEO Approval Ratings

I took the remaining eight companies and looked at the CEO approval ratings for each to find which companies had a highly liked CEO. The table below shows each of the companies CEO approval ratings from Glassdoor.

CEO Approval Rating

ESV

50%

FCX

86%

HAS

85%

KLAC

61%

LO

62%

MOLX

85%

PM

91%

SWY

37%

The Final List

My final step was to exclude companies with low CEO approval ratings from my final list. For my criteria for this step, I only wanted to include companies with an 85% + approval rating so that represents management's grade is a "B+" or better using a traditional grading scale. Therefore, after doing this, the final four companies are Freeport-McMoRan, Hasbro, Molex, and Philip Morris International. Based on my fair value analysis above, out of these four companies Freeport-McMoRan is undervalued by the most by a wide margin. Hasbro, Molex, and Phillip Morris are undervalued but "only" around an average of 10% undervalued, whereas Freeport-McMoRan is 73% undervalued.

Closing thoughts

In closing I believe the stocks on my final list are worth a deeper look because they are undervalued, pay a dividend that is currently greater than 3%, have shown the ability to increase the dividend, are projected to grow earnings long-term, and have a high CEO approval rating.

Disclaimer

Source: 4 Undervalued Companies With High CEO Approval Ratings