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Summary

  • All five companies are suitable for the conservative Defensive Investor following the ModernGraham approach.
  • Each company is currently rated as "undervalued" by the ModernGraham valuation model, which is based on Benjamin Graham's formula.
  • The market is currently implying an earnings growth rate of less than 3.5% for each company but they have all demonstrated greater growth.

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected five of the undervalued companies reviewed by ModernGraham with high dividend yields. 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. Wells Fargo & Co. (NYSE:WFC)

Wells Fargo Corp is a company that is intriguing to all value investors as it passes all of the requirements of both the Defensive Investor and the Enterprising Investor. As a result, value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company and comparing the company to other opportunities. As for the valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.83 in 2010 to an estimated $3.48 for 2014. This solid level of demonstrated growth more than supports the market's implied estimate of 3.22% 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)

WFC Chart

WFC data by YCharts

2. Deere & Co. (NYSE:DE)

Deere & Co. is suitable for either the Defensive Investor or the Enterprising Investor. The Defensive Investor's only concern is with the high PB ratio while the Enterprising Investor has no significant concerns. As a result, value 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 to be significantly undervalued after growing its EPSmg (normalized earnings) from $3.68 in 2010 to an estimated $7.77. This strong level of demonstrated growth is greater than the market's implied estimate of 1.64% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham's methods, to return an estimate of intrinsic value that is well above the market price at this time. (See the full valuation)

DE Chart

DE data by YCharts

3. Aflac Incorporated (NYSE:AFL)

Aflac accomplishes a rare feat by passing all of the requirements of both the Defensive Investor and the Enterprising Investor. Neither investor type has any major concerns with the company, and all value 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 competitors. From a valuation side of things, Aflac looks significantly undervalued after growing its EPSmg (normalized earnings) from $3.66 in 2010 to an estimated $5.96 in 2014. This strong level of demonstrated growth outpaces the market's implied estimate of only 1.02% earnings growth and leads the ModernGraham valuation model, which is based on one of Benjamin Graham's formulas, to return an estimate of intrinsic value well above the market price. (See the full valuation)

AFL Chart

AFL data by YCharts

4. National Oilwell-Varco (NYSE:NOV)

National Oilwell Varco is suitable for either the Defensive Investor or the Enterprising Investor. The only requirement for either investor type that the company did not pass was the ten year dividend history as required by the Defensive Investor. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should feel very comfortable proceeding with further research into the company and its competitors. From a valuation perspective, the company appears to be undervalued presently, having grown its EPSmg (normalized earnings) from $3.55 in 2009 to $5.07 for 2013. This demonstrated level of growth surpasses the market's implied estimate of 3.47% 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)

NOV Chart

NOV data by YCharts

5. Whirlpool Corporation (NYSE:WHR)

Whirlpool Corp is suitable for both Defensive Investors and Enterprising Investors. The Defensive Investor's only concern is the low current ratio and while the Enterprising Investor is concerned with the level of debt relative to the current assets, the company qualifies for the Enterprising Investor by default as it is suitable for Defensive Investors. As a result, value investors following the ModernGraham approach based on Benjamin Graham's methods should feel very comfortable proceeding with further research into the company and comparison to other opportunities. From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $6.42 in 2010 to an estimated $9.02 for 2014. This demonstrated level of growth supports the market's implied estimate of 3.47% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the price. (See the full valuation)

WHR Chart

WHR data by YCharts

Source: 5 Undervalued Companies For Defensive Investors With High Dividend Yields