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Summary

  • CI, HCP, MAT, WFM, and PBCT all have relatively low betas of less than 1, indicating they are less volatile than the market.
  • CI and MAT are both rated as suitable for Defensive Investors by the ModernGraham approach.
  • HCP, WFM, and PBCT qualify for the less conservative Enterprising Investor by 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. Cigna Corporation (NYSE:CI)

Cigna is an intriguing company for either Defensive Investors or Enterprising Investors. The company passes all of the requirements of each investor type, an impressive accomplishment. As a result, value 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 significantly undervalued after growing its EPSmg (normalized earnings) from $3.85 in 2010 to an estimated $5.86 for 2014. This strong level of demonstrated growth outpaces the market's implied estimate of 3.72% 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.

CI Chart

CI data by YCharts

2. HCP, Inc. (NYSE:HCP)

HCP Inc. for now qualifies for the Enterprising Investor, which is a rather rare achievement for a REIT as normally the level of debt present eliminates them from contention. In this case, though, the company's current assets are high enough this quarter to push it into contention for investment. For the Defensive Investor, the company's PEmg ratio is too high and the current ratio is not high enough to overcome that burden. 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 standpoint, the company appears to be undervalued, having grown its EPSmg (normalized earnings) from $0.57 in 2009 to $1.54 for 2013. This demonstrated level of growth is above the market's implied estimate of 8.9% earnings growth, and the ModernGraham valuation model has returned an estimate of intrinsic value that is higher than the market price.

HCP Chart

HCP data by YCharts

3. Mattel, Inc. (NASDAQ:MAT)

Mattel Inc. is suitable for either the Defensive Investor or the Enterprising Investor. For the Defensive Investor, the only concern is the high PB ratio, while the company passes all of the requirements of the Enterprising Investor. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company including comparing the company to other opportunities. From a valuation side of things, Hasbro appears significantly undervalued after growing its EPSmg (normalized earnings) from $1.35 in 2009 to $2.25 for 2013. This demonstrated level of growth is greater than the market's implied estimate of 4.31% and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

MAT Chart

MAT data by YCharts

4. Whole Foods Market (NASDAQ:WFM)

Whole Foods Market is suitable for Enterprising Investors but not Defensive Investors. For Defensive Investors, the company's current ratio is too low, it does not have a strong enough dividend history, and its PEmg and PB ratios are too high. The company passes all of the requirements of the Enterprising Investor. 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 while also comparing it to other opportunities. From a valuation perspective, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.56 in 2010 to an estimated $1.35 for 2014. This demonstrated level of growth supports the market's implied estimate of 14.51% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the price.

WFM Chart

WFM data by YCharts

5. People's United Financial (NASDAQ:PBCT)

People's United Financial is suitable for Enterprising Investors but not for Defensive Investors. The Defensive Investor is concerned with the high PEmg ratio, but the company passes all of the requirements for the Enterprising Investor. 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 a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from a $0.34 in 2010 to an estimated $0.71 for 2014. This level of demonstrated growth surpasses the market's implied estimate of 5.81% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the price at this time.

PBCT Chart

PBCT data by YCharts

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

Source: 5 Undervalued Companies With A Low Beta