These 5 Undervalued Companies Are Great For The Defensive Investor

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 |  Includes: CI, GPS, INTC, NSC, VZ
by: Benjamin Clark

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 Defensive Investor according to the ModernGraham approach. Defensive Investors are defined as investors who 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. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

Investors may also wish to review some other companies that satisfy the ModernGraham requirements while proceeding with further research of all of the following companies:

  • Cigna Corporation (NYSE:CI) - Cigna Corporation is an intriguing company for both the Defensive Investor and the Enterprising Investor. The company passes all of the requirements of each investor type, indicating it has strong financials and a strong history. This is a company that presents a low level of risk of significant loss for investors. Intelligent Investors seeking to follow Benjamin Graham's value investing methods should feel comfortable proceeding with further research into the company. From a valuation standpoint, the company has grown EPSmg (normalized earnings) from $2.76 to an estimated $5.23 for 2013 and has consistently shown a solid level of growth each year. The market is currently implying a growth rate of 4.26%, which is below what has been seen historically. As a result, Cigna Corporation would appear to be undervalued at the current time, and there has been little change in the price since we valued the company a little over a week ago.
  • The Gap Inc. (NYSE:GPS) - Gap Inc. is a very attractive company for both Defensive Investors and Enterprising Investors. The company has very strong financials, having passed all of the requirements for either investor type, with the exception of the price to book ratio requirement of the Defensive Investor. From a valuation perspective, Gap has grown its EPSmg (normalized earnings) from $1.17 in 2009 to an estimated $2.17 for 2014, and has done so through consistent annual growth. As a result, the ModernGraham valuation model looks very favorably on the company, and it appears to be undervalued with respect to the market's implied growth rate of 4.32%. Potential investors should feel comfortable doing further research on this company. We last reviewed GPS at the beginning of December, and it has dropped in price by over 8%, making it even more attractive to value investors.
  • Intel Corporation (NASDAQ:INTC) - Intel Corp is a very strong company, having passed every single requirement of both Defensive and Enterprising Investors. In addition, the company appears to be undervalued significantly by Mr. Market. The market is implying only 2.39% growth in 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. Since our last valuation of Intel, the company has risen about 10%. However, it still appears to be significantly undervalued. As a result, potential investors should be intrigued by Intel and proceed with further research of the company.
  • Norfolk Southern (NYSE:NSC) - Norfolk Southern appears to be a very solid company that should be on the watch list of all Defensive Investors and Enterprising Investors. The company passes all of the requirements of the Defensive Investor except for the current ratio requirement. While the company doesn't pass enough of the Enterprising Investor tests as we would like to normally see, since it is suitable for the Defensive Investor, it is by default also suitable for the Enterprising Investor. From a valuation perspective, the company has achieved solid growth recently, growing its EPSmg (normalized earnings) from $3.56 in 2009 to an estimated $5.22 for 2013. This level of growth supports a valuation above where the market is currently trading. As a result, Intelligent Investors should feel comfortable proceeding with further research to determine whether Norfolk Southern would be a good fit for their individual portfolios. There has been little change in price since we last valued Norfolk Southern.
  • 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. 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. This level of proven historical growth outpaces the growth implied by the market, and therefore Verizon is undervalued. In addition, since our last valuation of Verizon, the company has gone down a little more than 4%, making it even more attractive to value investors today.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.