10 Undervalued Companies For The Defensive Dividend Stock Investor - February 2016

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Includes: CF, CMI, CSCO, DOW, IVZ, MAC, NSC, QCOM, WDC, WRK
by: Benjamin Clark

Summary

All of these companies are rated as suitable for the Defensive Investor following the ModernGraham approach.

All ten are found to be significantly undervalued according to the ModernGraham valuation model.

The ten companies are found to have the highest dividend yield out of all undervalued companies which qualify for the Defensive Investor.

There are a number of great companies in the market today. I've selected the highest dividend yields among the undervalued companies for defensive dividend stock investors reviewed by ModernGraham. Each company has been determined to be suitable for the Defensive Investor according to the ModernGraham approach.

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.

The companies selected for this list may not pay what some consider to be a huge dividend, but they have demonstrated strong financial positions through passing the rigorous requirements of the Defensive Investor and show potential for capital growth based on their current price in relation to intrinsic value. As such, these defensive dividend stocks may be a great investment if they prove to be suitable for your portfolio after your own additional research.

Dow Chemical Co. (NYSE:DOW)

Dow Chemical Co. qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor is only initially concerned by the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.49 in 2011 to an estimated $3.01 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.65% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (Find the full valuation on ModernGraham.com)

WestRock Co. (NYSE:WRK)

WestRock Co. qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor's only initial concern is the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.97 in 2012 to an estimated $3.28 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.64% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (Find the full valuation on ModernGraham.com)

Cummins Inc. (NYSE:CMI)

Cummins Inc. qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $5.78 in 2011 to an estimated $8.71 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.77% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (Find the full valuation on ModernGraham.com)

Qualcomm, Inc. (NASDAQ:QCOM)

Qualcomm Inc. qualifies for the both the Defensive Investor and the Enterprising Investor. The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company's strong financial position. As a result, all 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 to be undervalued after growing its EPSmg (normalized earnings) from $1.94 in 2011 to an estimated $3.69 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.73% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (Find the full valuation on ModernGraham.com)

Western Digital Corp. (NYSE:WDC)

Western Digital Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only concerned with the short dividend history. The Enterprising Investor has no initial concerns. As a result, all 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 to be fairly valued after growing its EPSmg (normalized earnings) from $4.74 in 2012 to an estimated $5.98 for 2016. This level of demonstrated earnings growth supports the market's implied estimate of 1.98% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (Find the full valuation on ModernGraham.com)

CF Industries Holdings, Inc. (NYSE:CF)

CF Industries Holdings Inc. qualifies for both the Defensive Investor and for the Enterprising Investor. The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor's only concern is the level of debt relative to the net current assets. As a result, all 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 to be undervalued after growing its EPSmg (normalized earnings) from $2.46 in 2011 to an estimated $4.75 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.62% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (Find the full valuation on ModernGraham.com)

Invesco Ltd. (NYSE:IVZ)

Invesco Ltd qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only initially concerned by the low current ratio while the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company passes the more stringent Defensive Investor requirements. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.22 in 2011 to an estimated $2.12 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.52% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (Find the full valuation on ModernGraham.com)

Cisco Systems, Inc. (NASDAQ:CSCO)

Cisco Systems Inc. qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor is only concerned with the short dividend record. The Enterprising Investor has no initial concerns. As a result, all 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 to be undervalued after growing its EPSmg (normalized earnings) from $1.30 in 2011 to an estimated $1.83 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.5% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (Find the full valuation on ModernGraham.com)

Macerich Co. (NYSE:MAC)

Macerich Co. qualifies for both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor's only concern is the low current ratio. The Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company qualifies for the more conservative Defensive Investor. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.09 in 2011 to an estimated $4.27 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 5.32% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (Find the full valuation on ModernGraham.com)

Norfolk Southern Corp. (NYSE:NSC)

Norfolk Southern Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor's only initial concern is the low current ratio while the Enterprising Investor is willing to overlook concerns with the level of debt because the company passes the more stringent Defensive Investor requirements. As a result, all 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 to be fairly valued after growing its EPSmg (normalized earnings) from $4.28 in 2011 to an estimated $5.69 for 2015. This level of demonstrated earnings growth supports the market's implied estimate of 2.69% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value within a margin of safety relative to the price. (Find the full valuation on ModernGraham.com)

Disclosure: I am/we are long WDC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.