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We looked at 10 different companies this week, including finishing our review of the Dow Jones Industrial Average. Here's a summary of the ModernGraham Valuations. For more detailed analysis, click on the name of the company.

The Elite (Defensive or Enterprising and Undervalued)

  • AFLAC Inc. (NYSE:AFL) - AFLAC is a very attractive company, passing all of the requirements for both the Defensive Investor and the Enterprising Investor. The company has a strong balance sheet, good dividend history, and solid earnings growth. Defensive Investors and Enterprising Investors should feel very comfortable continuing with their research into the company. From a valuation standpoint, the strong earnings growth is from an EPSmg (normalized earnings) of $2.91 in 2008 to an estimated $5.56 in 2013. Such growth far outpaces the 1.71% the market is implying. The company appears significantly undervalued by the ModernGraham valuation model. Defensive Investors and Enterprising Investors should undertake further research to determine if the company would be suitable for their individual investment portfolios, while keeping in mind the 7 Key Tips to Value Investing.
  • Ford Motor Co. (NYSE:F) - Ford Motor Company has improved its situation considerably since ModernGraham last reviewed the company in 2009. Since then, earnings have grown consistently, and the company now appears suitable for the Enterprising Investor, who is able to take on more risk than his Defensive Investor cohort. The company fails to pass all of the requirements of the Defensive Investor because its current ratio is not high enough and has not consistently paid a dividend for over 10 years (the company took suspended dividends from 2007 to 2011). From a valuation standpoint, the company fares very well as a result of the EPSmg (normalized earnings) growth from -$3.60 in 2008 to an estimated $2.07 for 2013. This is significant growth and far outpaces the negative growth implied by the market at this time. As a result, the ModernGraham valuation model finds Ford Motor Company to be undervalued. Enterprising Investors should proceed with further research to determine whether the company is right for their individual portfolios, while keeping in mind the 7 Key Tips to Value Investing.
  • Verizon Communications (NYSE:VZ) - Verizon Communications appears to be a solid opportunity worthy of further research by both Defensive Investors and Enterprising Investors. The only significant concern is that the EPS for 2013 is estimated to be down significantly from the last few years; however, it does not drag the EPSmg (normalized earnings) down enough to negatively affect the result. The company passes all of the requirements for the Defensive Investor, proving it has strong financials, and it also passes all of the requirements for the Enterprising Investor. As a result, these types of investors should pay close attention to the company and do further research to determine if it is suitable for their individual portfolios, keeping in mind the 7 Key Tips to Value Investing. From a valuation standpoint, the company fares well in the ModernGraham valuation model after having grown its EPSmg from $2.16 in 2008 to an estimated $3.22 in 2013. Since this level of proven historical growth outpaces the growth implied by the market, it is possible Verizon is undervalued.

The Good (Defensive or Enterprising and Fairly Valued)

  • Baxter International (NYSE:BAX) - Baxter International is an intriguing company for Enterprising Investors. The company has fairly strong financials, stable earnings, and healthy growth. However, the company just barely fails the tests for the Defensive Investor, who is not willing to take on as much time for research as his Enterprising Investor cohort. The company's current ratio is slightly above the threshold for the Defensive Investor, and the price to book ratio is far too high for the Defensive Investor. From a valuation perspective, the company appears fairly valued after growing EPSmg (normalized earnings) from $2.42 in 2008 to an estimated $3.88 for 2013. Such growth is in line with the 4.56% growth implied by the market at this time. As a result, Enterprising Investors should feel comfortable doing further research to determine whether Baxter International is suitable for their individual portfolio, while keeping in mind the 7 Key Tips to Value Investing.
  • Visa Inc. (NYSE:V) - Visa is not suitable for the Defensive Investor because it is a relatively "new" company after only having its IPO a few years ago. Having such a recent IPO makes the financial information less available, and as a result, Defensive Investors (those that do not have the time to do as much research as Enterprising Investors) should shy away from Visa. However, the company does appear that it may be suitable for Enterprising Investors. Visa has achieved a positive EPS in each of the last 5 years, has grown earnings over the last 5 years, pays a dividend, and has a strong financial condition. Enterprising Investors should do further research while keeping in mind the 7 Key Tips to Value Investing. From a valuation perspective, the company appears to be fairly valued. The earnings have shown significant growth even in the short period of time available for analysis, and the market seems to be on target with its implied growth estimation.

The Mediocre (Defensive or Enterprising and Overvalued)

  • Baker Hughes (NYSE:BHI) - Baker Hughes is disappointing due to poor earnings trajectory over the last 10 years. The company's financials are very strong and its dividend history is good. Unfortunately, the company's EPSmg (normalized earnings) have shrunk each year for the last 6 years, dropping from $4.92 in 2008 to an estimated $2.87 for 2013. This consistent drop in earnings results in the company not passing the tests for the Defensive Investor. However, the company's financials are strong enough for the Enterprising Investor, who may be willing to take on more risk than his Defensive Investor friend. From a valuation perspective, the company's poor earnings history causes the ModernGraham valuation model to look negatively upon it. The growth to be expected based on its historical results is surely less than the 5.85% implied by the market. As a result, Enterprising Investors considering adding Baker Hughes to a portfolio should be very careful and do considerable research while keeping in mind the 7 Key Tips to Value Investing.

The Bad (Speculative and Undervalued or Fairly Valued)

  • Wal-Mart Stores Inc. (NYSE:WMT) - Wal-Mart Stores is a solid company with a strong history of success; however, when measured using ModernGraham's requirements for the Defensive Investor or the Enterprising Investor, revised and updated from Benjamin Graham's The Intelligent Investor, the company does not appear to be a solid opportunity at this time. The current ratio and the high PB ratio eliminate it from contention for the Defensive Investor, and similarly the high level of current liabilities eliminates it from the Enterprising Investor's view. Looking at it purely on a valuation standpoint, the company appears to be fairly valued, as it is currently trading within ModernGraham's margin of safety.
  • The Walt Disney Company (NYSE:DIS) - The Walt Disney Company is another stalwart of the American business world. The company has fairly strong financials and has a very strong history of earnings growth. Unfortunately, Defensive Investors and Enterprising Investors following the approaches set forth in Benjamin Graham's The Intelligent Investor set very stringent requirements for the companies in which they invest, and Disney does not pass those requirements. In particular, the company has a poor current ratio and trades at a high PEmg ratio. From a valuation perspective, the company does seem to be fairly valued, as the market implied growth rate is very close to what has been seen historically.

The Ugly (Speculative and Overvalued)

  • Allegheny Technologies (NYSE:ATI) - Allegheny Technologies presents a rare situation for the ModernGraham valuation model. The earnings have been shrinking consistently over time, which leads the model to estimate negative growth and value the company extremely poorly. Specifically, the EPSmg (normalized earnings) have dropped from $5.44 in 2008 to an estimated $0.74 for 2013. Therefore, it is likely there is value in the company, but it does not come from the earnings at this time. As for the requirements for the Defensive Investor and the Enterprising Investor, the lack of earnings growth negatively affects the company there as well, and the company does not appear suitable for either investor type at this time. Any potential investor should do considerable research to determine whether Allegheny Technologies belongs in an individual portfolio, as there is significant risk involved with this company.
  • American Electric Power Co. (NYSE:AEP) - American Electric Power Company is a large utility company that pays a healthy dividend, but like many other companies we've reviewed recently, its debt is too large to pass the requirements of either a Defensive Investor or an Enterprising Investor. In addition, the company has failed to grow its earnings, with EPSmg (normalized earnings) of $2.95 in 2008 and only $2.99 estimated for 2013. Even though the company has good dividends and may be attractive from that angle, the lack of earnings growth may mean that it may not be sustainable to grow dividends as well. As a result, the company appears to be speculative from a ModernGraham perspective. From a valuation standpoint, the company's lack of growth affects the valuation as well, and the company appears to be overvalued by a market that is implying the company will grow at 3.78%.

Source: 10 Companies In The Spotlight This Week - 11/23/13