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Summary

  • COF, HCP, LEN, PETM, and SLM are all rated as undervalued by the ModernGraham valuation model.
  • All five qualify for the Enterprising Investor under the ModernGraham approach.
  • HCP also qualifies for the Defensive Investor.

ModernGraham currently covers over 350 companies in its Valuation Index, analyzing each in detail to determine whether they fit a modernized version of Benjamin Graham's conservative metrics from his classic The Intelligent Investor.

The site then proceeds to give each company a rating as suitable for Defensive Investors, those unwilling to conduct substantial research, Enterprising Investors, those happy to spend the time researching, or Speculators.

Each company is further analyzed using one of Graham's valuation formulas to determine whether it is undervalued, fairly valued, or overvalued by Mr. Market today.

The following five companies were found this week to be suitable for either Defensive Investors or Enterprising Investors (or both) and undervalued:

Capital One Financial (NYSE:COF)

Capital One is suitable for Enterprising Investors but not for Defensive Investors. The Defensive Investor is concerned by the lack of sufficient earnings growth over the last ten years, 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 explore other opportunities. As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $3.90 in 2010 to an estimated $6.96 for 2014. This strong level of demonstrated growth outpaces the market's implied estimate of 1.78% 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.

COF Chart

COF data by YCharts

HCP Inc. (NYSE:HCP)

HCP Inc. is a rare REIT which qualifies for the Defensive Investor and thus also the Enterprising Investor. The Defensive Investor's only concern at this time is the low current ratio and the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the Defensive Investor is satisfied. 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. As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $0.66 in 2010 to an estimated $2.12 for 2014. This level of demonstrated growth is greater than the market's implied estimate of 5.52% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham's formula, to return an estimate of intrinsic value above the market price.

HCP Chart

HCP data by YCharts

Lennar Corporation (NYSE:LEN)

Lennar Corporation qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the insufficient earnings stability and growth over the last ten years. The Enterprising Investor has no major concerns at this time. 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 a loss of $3.23 in 2010 to an estimated gain of $2.10 for 2014. This level of demonstrated growth is greater than the market's implied estimate of 5.34% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham's formula, to return an estimate of intrinsic value greater than the price.

L Chart

L data by YCharts

PetSmart Inc. (NASDAQ:PETM)

PetSmart qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the low current ratio and the high PB ratio. The Enterprising Investor has no issues presently as the company 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 $1.75 in 2011 to an estimated $3.67 for 2015. This level of demonstrated growth is greater than the market's implied estimate of 5.27% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham's formula, to return an estimate of intrinsic value above than the price.

PETM Chart

PETM data by YCharts

SLM Corporation (NASDAQ:SLM)

SLM Corporation is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the lack of stable earnings over the last ten years and the lack of consistent dividend payments over the last ten years. However, the company passes all of the Enterprising Investor's requirements and the investor type thus has no significant initial concerns. 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 $0.28 in 2010 to an estimated $1.53 for 2014. This level of demonstrated growth supports the market's implied estimate of negative 1.52% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham's formula, to return an estimate of intrinsic value well above the price.

SLM Chart

SLM data by YCharts

Source: 5 Elite Companies To Research This Week