There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected five of the most undervalued companies reviewed by ModernGraham. Each company has been determined to be suitable for the Defensive Investor or the Enterprising Investor according to the ModernGraham approach. Defensive Investors are defined as investors that are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk.
Investors should keep in mind the 7 Key Tips to Value Investing while proceeding with further research of all of the following companies:
AFLAC Corporation (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 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.
Deere & Co. (DE) - Deere & Co. is a strong company and passes the requirements for both the Defensive Investor and the Enterprising Investor. The only knocks on the company in that regard is that the PB ratio is a little high, but that is not enough to eliminate the company from further review by either investor type. The ModernGraham valuation model also views Deere & Co. favorably, as a result of the strong growth the company has demonstrated over the historical period. The company's EPSmg (normalized earnings) have grown from $3.83 in 2008 to an estimated $6.86 for 2013. This level of growth surpasses the market's implied growth rate of only 2.1%, and as a result it would appear the company is undervalued at this time.
Ford Motor Company (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.
Intel Corp. (INTC) - Intel Corp is a very strong company, having passed every single requirement of both the Defensive and Enterprising Investors. In addition, the company appears to be undervalued significantly by Mr. Market. The market is implying only 1.86% growth in the earnings, but historically the growth rate is much higher. The EPSmg (normalized earnings) has grown from $1.06 in 2008 to an estimated $1.99 in 2013. Further, the PEmg is only 12.21, which should be low enough to attract the attention of value investors. As a result, potential investors should be intrigued by Intel and proceed with further research of the company.
JP Morgan (JPM) - JPMorgan Chase is a very intriguing financial company based on its earnings growth over the last 10 years. The company passes all of the tests required for both the Defensive and Enterprising Investor because it has strong financials. From a valuation perspective, the company fares well in the ModernGraham valuation model after achieving significant growth in EPSmg (normalized earnings) of $2.62 in 2008 to an estimated $4.48 in 2013.The market is currently implying further growth of only 1.78%, which should be easily beatable by such a large bank.