There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected five of the companies reviewed by ModernGraham that have the lowest PEmg ratio (P/E ratio based on normalized earnings). Each company has been determined to be suitable for the Defensive Investor or the Enterprising 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.
Investors should keep in mind the 7 Key Tips to Value Investing while proceeding with further research of all of the following companies:
Capital One Financial (NYSE:COF) - Capital One Financial is a company that stands out from its peers, having survived the financial meltdown without posting a negative earnings year. This company is not suitable for the Defensive Investor, due to not sufficiently growing earnings over the ten year period, but it is suitable for the Enterprising Investor. Capital One appears to have solid earnings stability, a strong dividend history, and is trading at low PEmg and PB ratios. Value investors seeking to follow Benjamin Graham's methods for the Enterprising Investor should feel very comfortable proceeding with further research. The market implied earnings growth rate is 1.33%, which is far below what the company has historically achieved.
Chevron (NYSE:CVX) - Chevron passes almost all of the tests for both the defensive and enterprising intelligent investors, with the sole exception being that its current ratio is not quite strong enough for the defensive investor. As a result, Chevron deserves more thorough research from potential investors. It also appears the company may be undervalued due to very high earnings growth over the last few years that may not be adequately reflected by the market, which is currently implying a growth rate of only 0.75%.
Ford (NYSE:F) - Ford Motor Company appears suitable for the Enterprising Investor, who is able to take on more risk than his Defensive Investor cohort. The company fails to pass all of the requirements of the Defensive Investor because its current ratio is not high enough and has not consistently paid a dividend for over 10 years (the company took suspended dividends from 2007 to 2011). From a valuation standpoint, the company fares very well as a result of the EPSmg (normalized earnings) growth from -$3.60 in 2008 to an estimated $2.07 for 2013. This is significant growth and far outpaces the growth implied by the market at this time. As a result, the ModernGraham valuation model finds Ford Motor Company to be undervalued. Enterprising Investors should proceed with further research to determine whether the company is right for their individual portfolios.
Intel (NASDAQ:INTC) - Intel Corp is a very strong company, having passed every single requirement of both the Defensive and Enterprising Investors. In addition, the company appears to be undervalued significantly by Mr. Market. The market is implying only 2.01% growth in the earnings, but historically the growth rate that has been seen is much higher. The EPSmg (normalized earnings) has grown from $1.06 in 2008 to an estimated $1.99 in 2013. Further, the PEmg is only 12.61, which should be low enough to attract the attention of value investors. As a result, potential investors should be intrigued by Intel and proceed with further research of the company.
JP Morgan Chase (NYSE:JPM) - JPMorgan Chase is a very intriguing financial company, based on its earnings growth over the last 10 years. The company passes all of the tests required for both the Defensive and Enterprising Investor because it has strong financials. From a valuation perspective, the company fares well in the ModernGraham valuation model after achieving significant growth in EPSmg (normalized earnings) of $2.62 in 2008 to an estimated $4.48 in 2013. The market is currently implying further growth of only 1.92%, which should be easily beatable by such a large bank. As a result, investors of all kinds should be interested in JPMorgan Chase and should do further research to determine whether it would be a suitable investment for them individually.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.