5 Undervalued Companies With A High Beta

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Includes: BEN, F, HOG, KLAC, TEL
by: Benjamin Clark

Summary

HOG, KLAC, BEN, TEL, and F all have relatively high betas greater than 1.5, indicating they are more volatile than the market.

BEN is rated as suitable for Defensive Investors by the ModernGraham approach.

HOG, KLAC, TEL, and F 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 rated as undervalued by the model and with high betas. 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. Harley-Davidson (NYSE:HOG)

With a beta of 1.7, Harley-Davidson is suitable for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the company's low current ratio, insufficient earnings growth over the last ten years, and high PEmg (price over normalized earnings) and PB ratios. The Enterprising Investor's only initial concern is 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. From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.77 in 2010 to an estimated $3.09 for 2014. This low level of demonstrated growth does not support the market's implied estimate of 7.07% 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 above the current price.

HOG Chart

HOG data by YCharts

2. KLA-Tencor (NASDAQ:KLAC)

KLA-Tencor has a beta of 1.7 and qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the insufficient earnings stability over the last ten years as well as the high PEmg and PB ratios. 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 $0.45 in 2010 to an estimated $3.65 for 2014. This level of demonstrated growth outpaces the market's implied estimate of 5.97% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham's formula, to return an estimate of intrinsic value above the price.

KLAC Chart

KLAC data by YCharts

3. Franklin Resources (NYSE:BEN)

Franklin Resources qualifies for both Defensive Investors and Enterprising Investors with a beta of 1.7. The Defensive Investor is only concerned with the high PB ratio, while the company passes all of the requirements of 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 by exploring the ModernGraham Valuation Index. From a valuation side of things, the company appears undervalued after growing its EPSmg (normalized earnings) from $1.91 in 2010 to an estimated $3.26 in 2014. This level of demonstrated growth outpaces the market's implied estimate of 4.18% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the price.

BEN Chart

BEN data by YCharts

4. TE Connectivity (NYSE:TEL)

TE Connectivity has a beta of 1.6 and is suitable for Enterprising Investors but not for Defensive Investors. The company's operating history as a stand-alone entity is not long enough to satisfy the requirements of Defensive Investors, 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 very comfortable proceeding with further research into the company and its competitors. From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from -$0.41 in 2010 to an estimated $3.13 for 2014. This strong level of growth outpaces the market's implied estimate of 5.16% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

TEL Chart

TEL data by YCharts

5. Ford Motor Company (NYSE:F)

Ford Motor Company, with a beta of 1.6, is suitable for Enterprising Investors but not for Defensive Investors. Defensive Investors have concerns with the lack of earnings stability over the last ten years as well as the lack of a strong dividend history over that time frame. The company passes all of the requirements of Enterprising Investors, though. 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 by exploring the ModernGraham Valuation Index. From a valuation perspective, the company appears to be undervalued currently, after growing its EPSmg (normalized earnings) from negative $1.14 in 2010 to an estimated $1.92 for 2014. This demonstrated level of growth dwarfs the market's implied estimate of a negative 0.10% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well above the market price at this time.

F Chart

F data by YCharts

Disclosure: The author is long F. 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.