5 Undervalued Stocks For Value Investors With A High Beta - March 2017

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Includes: AMP, IVZ, KBH, LNC, STX
by: Benjamin Clark

Summary

These companies are all rated as suitable for the Defensive Investor and/or the Enterprising Investor following the ModernGraham approach.

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

The companies have the highest beta among similarly rated companies in the ModernGraham Universe.

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected the five undervalued companies for value investors reviewed by ModernGraham with the highest beta.

A company's beta indicates the correlation at which its price moves in relation to the market. A beta greater than 1 indicates a company is more volatile than the market.

Each company has been determined to be suitable for either 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.

With a high beta, Mr. Market may turn these companies around very quickly, so be sure to check them out in depth!

Lincoln National Corporation (NYSE:LNC)

Lincoln National Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.04 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.12% 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.

Ameriprise Financial, Inc. (NYSE:AMP)

Ameriprise Financial, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.92 in 2012 to an estimated $7.78 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.14% 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.

Invesco Ltd. (NYSE:IVZ)

Invesco Ltd. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.3 in 2012 to an estimated $2.15 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.37% 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.

KB Home (NYSE:KBH)

KB Home is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-0.72 in 2013 to an estimated $2.2 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.52% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into KB Home revealed the company was trading below its Graham Number of $25.21. The company pays a dividend of $0.1 per share, for a yield of 0.6% Its PEmg (price over earnings per share - ModernGraham) was 7.47, which was below the industry average of 28.49, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $8.5.

Seagate Technology PLC (NASDAQ:STX)

Seagate Technology PLC is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.39 in 2012 to an estimated $3.74 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.03% 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.

Disclosure: I am/we are long IVZ.

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.

Additional disclosure: See a list of my current holdings on ModernGraham.com. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer on ModernGraham.com.