5 Companies With Low PE Ratios For The Defensive Investor

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 |  Includes: ACE, CF, CVX, JPM, TRV
by: Benjamin Clark

Summary

These 5 companies are suitable for Defensive 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 12.5 or less.

Each company is also either fairly valued or undervalued, according to the ModernGraham valuation model based on Benjamin Graham's formula.

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. Chevron Corporation (NYSE:CVX)

Chevron Corporation qualifies for both Defensive Investors and Enterprising Investors. The Defensive Investor is only concerned with the low current ratio, and the company by default also qualifies for the Enterprising Investor. 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 and its competitors. From a valuation side of things, the company appears undervalued after growing its EPSmg (normalized earnings) from $8.58 in 2010 to an estimated $11.17 in 2014. This level of demonstrated growth outpaces the market's implied estimate of 1.27% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the price.

CVX Chart

CVX data by YCharts

2. CF Industries Holdings (NYSE:CF)

CF Industries is a very intriguing company for both Defensive Investors and Enterprising Investors. The Defensive Investor's only concern is the lack of earnings stability over the last ten years, while the Enterprising Investor's only issue is with the 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 proceeding with further research into the company and comparing it to other opportunities. Looking at the company from a valuation angle shows the company to be significantly undervalued after growing its EPSmg (normalized earnings) from $7.11 in 2010 to an estimated $21.47 for 2014. This strong level of demonstrated growth greatly exceeds the market's implied estimate of 1.23% 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.

CF Chart

CF data by YCharts

3. ACE Limited (NYSE:ACE)

Ace Limited is suitable for either the Defensive Investor or the Enterprising Investor. The company passes all of the requirements of both investor types, which is a rare accomplishment. 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 and comparing the company to other opportunities. From a valuation side of things, the company appears fairly valued after growing its EPSmg (normalized earnings) from $7.24 in 2010 to an estimated $8.60 for 2014. This level of demonstrated growth supports the market's implied estimate of 1.72% 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 market price.

ACE Chart

ACE data by YCharts

4. The Travelers Companies (NYSE:TRV)

The Travelers Companies is suitable for either the Defensive Investor or the Enterprising Investor. The company passes all of the requirements of both investor types, which is a rare accomplishment. 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 and comparing the company to other opportunities. From a valuation side of things, the company appears fairly valued after growing its EPSmg (normalized earnings) from $6.19 in 2010 to an estimated $7.49 for 2014. This level of demonstrated growth supports the market's implied estimate of 1.95% 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 market price.

TRV Chart

TRV data by YCharts

5. JPMorgan Chase (NYSE:JPM)

JPMorgan Chase is suitable for either Defensive Investors or Enterprising Investors. The company passes all of the requirements of both investor types, which is a rare accomplishment. 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 and comparing the company to other opportunities. From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.92 in 2010 to an estimated $4.75 for 2014. This strong level of demonstrated growth outpaces the market's implied estimate of only 1.49% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price at this time.

JPM Chart

JPM data by YCharts

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.