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Summary

  • DHI, AAPL, COH, VIAB, and KLAC are all significantly undervalued according to the ModernGraham valuation model, based on a classic Benjamin Graham formula.
  • All five companies pass the conservative Enterprising Investor requirements of the ModernGraham approach.
  • The market is currently implying a growth rate for all of them which falls below what the company has achieved in recent history.

here 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 Enterprising Investor according to the ModernGraham approach, which is a modernized version of legendary value investor Benjamin Graham's requirements for Intelligent Investing.

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.

1. D.R. Horton Inc. (DHI)

D.R. Horton is an interesting company for the Enterprising Investor, but is not suitable for the Defensive Investor. The company has shown insufficient earnings stability or growth over the ten year historical period for the Defensive Investor. The company does pass all of the Enterprising Investor's requirements. As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company as well as other opportunities. From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from -$1.91 in 2010 to an estimated $1.47 for 2014. This level of demonstrated growth outpaces the market's implied estimate of 3.81% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price. (See the full valuation)

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DHI Chart

DHI data by YCharts

2. Apple Inc. (AAPL)

Apple is a very strong company for Enterprising Investors to explore, but the Defensive Investor has concerns with the low current ratio, lack of a long enough dividend record, and the high PB ratio. The company passes all of the Enterprising Investor's requirements. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities. From a valuation side of things, the company appears significantly undervalued after growing its EPSmg (normalized earnings) from $1.32 in 2010 to an estimated $5.47 for 2014. This strong level of demonstrated growth outpaces the market's implied estimate of 4.18% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham's formula, to return an estimate of intrinsic value well above the market price. (See the full valuation)

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AAPL Chart

AAPL data by YCharts

3. Coach, Inc. (COH)

Coach Inc. is a very intriguing company for Enterprising Investors, having passed all five of the investor type's requirements. The company does not quite qualify for the Defensive Investor due to the short dividend history and the high PB ratio. As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company but should also compare it to other opportunities. From a valuation perspective, the company looks significantly undervalued after having grown its EPSmg (normalized earnings) from $2.03 in 2010 to an estimated $3.19 for 2014. This demonstrated level of growth outpaces the market's implied estimate of 1.97% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price. (See the full valuation)

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COH Chart

COH data by YCharts

4. Viacom, Inc. (VIAB)

Viacom is an intriguing company for the Enterprising Investor, having passed all but one of the investor type's requirements. The company does not qualify for the Defensive Investor, though, due to the low current ratio, lack of long enough dividend history, and high PB ratio. As a result, Enterprising Investors should feel comfortable conducting further research into the company and its competitors. From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.29 in 2010 to an estimated $4.62 for 2014. This solid level of demonstrated growth outpaces the market's implied estimate of 5.11% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price. (See the full valuation)

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VIAB Chart

VIAB data by YCharts

5. KLA-Tencor Corp (KLAC)

KLA-Tencor is a very intriguing company for the Enterprising Investor, but is not suitable for the Defensive Investor. The company has shown insufficient earnings stability and trades at a PB ratio too high for the Defensive Investor; however, the company passes all of the Enterprising Investor's requirements. As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company as well as other opportunities. From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $0.45 in 2010 to an estimated $3.65 for 2014. This level of demonstrated growth outpaces the market's implied estimate of 5.16% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price. (See the full valuation)

(click to enlarge)

KLAC Chart

KLAC data by YCharts

Source: 5 More Undervalued Companies For Enterprising Investors