5 Undervalued Companies For Enterprising Investors Near 52-Week Lows

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 |  Includes: BGS, EMC, FDO, GPS, RL
by: Benjamin Clark

Summary

All 5 of these companies are rated as undervalued by the ModernGraham valuation model based on Benjamin Graham's formula.

Each company is also suitable for the Enterprising Investor following the ModernGraham approach.

Out of 325+ companies reviewed by ModernGraham, these 5 are among the few currently trading near 52-week lows.

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 PE mg ratios (price-to-earnings ratio, based on normalized earnings). 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. Family Dollar Stores Inc. (NYSE:FDO)

Family Dollar qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the low current ratio and the high PEmg and PB ratios, but 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. As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.06 in 2010 to an estimated $3.26 in 2014. This level of demonstrated growth supports the market's implied estimate of 5.81% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham's formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

FDO Chart

FDO data by YCharts

2. Ralph Lauren Corp. (NYSE:RL)

Ralph Lauren is suitable for Enterprising Investors, having passed all of the investor type's requirements, but the company is not suitable for Defensive Investors. The Defensive Investor is concerned with the high price-to-earnings and price-to-book ratios. 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. As for a valuation, the company appears significantly undervalued after growing its EPSmg (normalized earnings) from $4.13 in 2010 to $7.45 for 2014. This high level of demonstrated growth outpaces the market's implied estimate of 6.03% and leads the ModernGraham valuation model, which is based on a Benjamin Graham formula, to return an estimate of intrinsic value well above the market price.

RL Chart

RL data by YCharts

3. The Gap Inc. (NYSE:GPS)

Gap Inc. qualifies for Enterprising Investors but not for Defensive Investors. The company does not pass the Defensive Investor's requirements regarding the current ratio or the PB ratio, but 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 and its competitors. As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $1.31 in 2010 to $2.20 in 2014. This demonstrated level of growth surpasses the market's implied estimate of 5.05% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value well above the market price.

GPS Chart

GPS data by YCharts

4. EMC Corporation (NYSE:EMC)

EMC Corp. qualifies for the Enterprising Investor but not the Defensive Investor, who is concerned with the company's low current ratio and the short dividend history. The Enterprising Investor does not have many initial concerns with the company, though, as it passes all of the investor type'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 to be undervalued after growing its EPSmg (normalized earnings) from $0.70 in 2010 to an estimated $1.33 for 2014. This level of demonstrated growth outpaces the market's implied estimate of 5.72% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham's formula, to return an estimate of intrinsic value that is well above the current price.

EMC Chart

EMC data by YCharts

5. B&G Foods Inc. (NYSE:BGS)

B&G Foods is intriguing to Enterprising Investors but does not qualify for the Defensive Investor. The Defensive Investor has some major concerns and, in fact, the only requirements of the investor type which the company passes are the earnings stability and earnings growth. The Enterprising Investor, on the other hand, only has an issue with the 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 comfortable proceeding with further research into the company and comparing it to other opportunities. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.49 in 2010 to an estimated $1.22 for 2014. This strong level of demonstrated growth outpaces the market's implied estimate of 9.57% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham's formula, to return an estimate of intrinsic value exceeding the market price.

BGS Chart

BGS data by YCharts

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.