5 More Undervalued Companies For The Defensive Investor

Sep. 21, 2014 2:26 PM ETAET, BEN, CVX, PEAK, WFC3 Comments
Benjamin Clark profile picture
Benjamin Clark


  • WFC, HCP, AET, CVX, and BEN are all rated as suitable for the Defensive Investor or the Enterprising Investor following the ModernGraham approach.
  • All five are found to be significantly undervalued, according to the ModernGraham valuation model.
  • The market is implying a low growth rate, despite the demonstrated growth each company has achieved.

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected five companies which have been determined to be undervalued based on a formula taught by Benjamin Graham. 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 be considered by the Defensive Investor, a company must pass at least 6 of the following 7 tests.

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion.
  2. Sufficiently Strong Financial Condition - current ratio greater than 2.
  3. Earnings Stability - positive earnings per share for at least 10 straight years.
  4. Dividend Record - has paid a dividend for at least 10 straight years.
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3-year averages at beginning and end of period.
  6. Moderate PEmg ratio (price over normalized earnings) - PEmg is less than 20
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50.

Note: If the company is a financial or insurance company, test #2 regarding the financial condition is not required; however, the company must pass all six of the remaining tests.

To be considered

This article was written by

Benjamin Clark profile picture
Benjamin is one of TipRank's top bloggers.  He is the founder of ModernGraham.com, a value investing website devoted to the study and modernization of the teachings of Benjamin Graham.

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.

Recommended For You

Comments (3)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.