5 Undervalued Companies With A High Dividend Yield For The Enterprising Investor

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Includes: F, FITB, GCI, IP, KLAC
by: Benjamin Clark

Summary

These 5 companies are rated as undervalued by the ModernGraham valuation model, based on a formula from Benjamin Graham.

All 5 of these companies are suitable for Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods.

All have a dividend yield greater than 2.4%.

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.

To see the full valuations of each of the following companies, please visit the ModernGraham Valuation Index.

1. Ford Motor Company (NYSE:F)

Ford Motor Company is suitable for Enterprising Investors but not for Defensive Investors. Defensive Investors have concerns with the lack of earnings stability over the last ten years as well as the lack of a strong dividend history over that time frame. The company passes all of the requirements of Enterprising Investors, though. 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 its competitors by exploring the ModernGraham Valuation Index. From a valuation perspective, the company appears to be undervalued currently, after growing its EPSmg (normalized earnings) from negative $1.14 in 2010 to an estimated $1.92 for 2014. This demonstrated level of growth dwarfs the market's implied estimate of 0.15% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well above the market price at this time.

F Chart

F data by YCharts

2. International Paper Company (NYSE:IP)

International Paper is suitable for Enterprising Investors but not Defensive Investors. The company's current ratio is too low and there has been insufficient earnings stability in the last ten years for the Defensive Investor. The Enterprising Investor's only concern is with the high level of debt relative to the current assets. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should explore other opportunities. From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.74 in 2009 to $2.35 for 2013. This level of demonstrated growth outpaces the market's implied estimate of 6.09% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

IP Chart

IP data by YCharts

3. Gannett Company Inc. (NYSE:GCI)

Gannett Co. is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor is concerned with the low current ratio and the lack of earnings stability or growth over the last ten years. The Enterprising Investor has a shorter time horizon, though, and only finds a concern with regard to the high level of debt relative to the net current assets. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel very 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 -$3.75 in 2010 to an estimated $2.06 for 2014. This solid level of demonstrated growth leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

GCI Chart

GCI data by YCharts

4. KLA-Tencor Corporation (NASDAQ: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 5.38% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

KLAC Chart

KLAC data by YCharts

5. Fifth Third Bancorp (NASDAQ:FITB)

Fifth Third Bancorp is suitable for Enterprising Investors but not for Defensive Investors, who are concerned with the lack of earnings stability over the last ten years and the lack of earnings growth over the same period. 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 explore other opportunities. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.02 in 2010 to an estimated $1.59 for 2014. This level of demonstrated growth outpaces the market's implied estimate of 2.52% 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.

FITB Chart

FITB data by YCharts

Disclosure: The author is long F. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.