5 Companies With Low P/E Ratios For Enterprising Investors

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Includes: DFS, GCI, GLW, LLL, USB
by: Benjamin Clark

Summary

DFS, LLL, GLW, GCI, and USB are all suitable for Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods.

All 5 have a PEmg ratio (Price-to-Earnings based on normalized earnings) of 15.5 or less.

The companies do not qualify for the more conservative Defensive Investor under the ModernGraham approach.

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected five companies reviewed by ModernGraham with low PEmg ratios (price-to-earnings ratio, based on normalized earnings). Each company has been determined to be suitable for the Defensive 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. Discover Financial Services (NYSE:DFS)

Discover Financial Corp. is a company that is intriguing to Enterprising Investors but does not quite qualify for the Defensive Investor. The company has a short history as a publicly traded company and has yet to establish the dividend history the Defensive Investor requires. 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 the company to other opportunities. As for the valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.78 in 2010 to an estimated $4.51 for 2014. This solid level of demonstrated growth more than supports the market's implied estimate of 1.96% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

2. L-3 Communications (NYSE:LLL)

L-3 Communications is suitable for either Defensive Investors or Enterprising Investors. The Defensive Investor's only concern is the current ratio, while the Enterprising Investor is concerned with the high level of debt relative to the net current assets. As a result, value investors following the ModernGraham approach based on Benjamin Graham's methods, should feel comfortable conducting further research into the company. From a valuation side of things, the company appears overvalued after growing its EPSmg (normalized earnings) from $7.37 in 2010 to only an estimated $8.37 for 2014. This low level of demonstrated growth does not support the market's implied estimate of 2.99% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market price.

3. Corning Incorporated (NYSE:GLW)

Corning Inc. is not suitable for Defensive Investors but is suitable for Enterprising Investors. The Defensive Investor is concerned with the lack of earnings stability or growth over the last ten years, and the short dividend history. The Enterprising Investor's only concern is the lack of earnings growth over the last five years. 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 overvalued after seeing a drop in EPSmg (normalized earnings) from $1.76 in 2009 to $1.49 for 2013. This demonstrated lack of growth does not support the market's implied estimate of 2.7% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the market price.

4. Gannett Company (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 through a review of 5 Low PEmg Companies for the Defensive Investor and 5 Undervalued Companies for Enterprising Investors. 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.

5. U.S. Bancorp (NYSE:USB)

US Bancorp is suitable for Enterprising Investors but not Defensive Investors, who are concerned about the lack of growth over the last ten years. Enterprising Investors have a shorter horizon of analysis and are very intrigued by the company. As a result, Enterprising Investors seeking to follow 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. From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.66 in 2010 to an estimated $2.82 for 2014. This solid level of growth outpaces the market's implied estimate of 2.88% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

What do you think? Are these companies good opportunities for investors? Which companies would you put on this list?

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.