5 Companies With Low P/E Ratios For The Enterprising Investor

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 |  Includes: ANTM, DFS, DHI, FITB, KSS
by: Benjamin Clark

Summary

KSS, FITB, WLP, DHI, and DFS 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 14 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 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. Kohl's Corporation (NYSE:KSS)

Kohl's Corporation is suitable for Enterprising Investors but not for Defensive Investors. The Defensive Investor is concerned with the low current ratio and the short dividend history while the Enterprising Investor's only concern is 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 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 fairly valued after growing its EPSmg (normalized earnings) from $3.33 in 2011 to an estimated $4.11 for 2015. This level of demonstrated growth supports the market's implied estimate of 2.00% 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.

KSS Chart

KSS data by YCharts

2. Fifth Third Bancorp (NASDAQ:FITB)

Fifth Third Bancorp is suitable for Enterprising Investors but not for Defensive Investors, who are concerned with the lack of earnings stability over the last ten years and the lack of earnings growth over the same period. 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 explore other opportunities. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.02 in 2010 to an estimated $1.59 for 2014. This level of demonstrated growth outpaces the market's implied estimate of 2.43% 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.

FITB Chart

FITB data by YCharts

3. WellPoint, Inc. (WLP)

WellPoint Inc. qualifies for Enterprising Investors but not for Defensive Investors. The Defensive Investor is concerned with the short dividend record, 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 it to other opportunities. From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $6.96 in 2010 to an estimated $8.18 for 2014. This level of demonstrated growth supports the market's implied estimate of 2.24% earnings growth and leads the ModernGraham valuation model, which is based on one of Benjamin Graham's formula, to return an estimate of intrinsic value within a margin of safety relative to the market price.

WLP Chart

WLP data by YCharts

4. D.R. Horton Inc. (NYSE:DHI)

D.R. Horton is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the insufficient earnings growth or stability 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 $1.91 in 2010 to an estimated gain of $1.51 for 2014. This level of demonstrated growth outpaces the market's implied estimate of 3.74% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham's formula, to return an estimate of intrinsic value above the price.

DHI Chart

DHI data by YCharts

5. Discover Financial Services (NYSE:DFS)

Discover Financial Services 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.

DFS Chart

DFS 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.