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5 Undervalued Companies In The S&P 500

Mar. 08, 2018 9:34 AM ETGILD, LNC, LYB, PFG, VZ25 Comments
Benjamin Clark profile picture
Benjamin Clark


  • These companies are all rated as suitable for the Defensive Investor and/or the Enterprising Investor following the ModernGraham approach.
  • All ten are found to be significantly undervalued according to the ModernGraham valuation model.
  • The companies are among the most undervalued of all of the S&P 500.

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected the some of the most undervalued companies of the S&P 500. The ModernGraham model is based on the full teachings of Benjamin Graham. All of these companies are suitable for the Defensive Investor and/or the Enterprising Investor.

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.

Verizon Communications Inc. (VZ)

Verizon Communications Inc. 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 defined in more detail here) from $2.11 in 2014 to an estimated $4.58 for 2018. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.11% annual earnings growth 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 Verizon Communications Inc. revealed the company was trading above its Graham Number of $29.66. The company pays a dividend of $2.34 per share, for a yield of 4.8%, putting it among the best

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.

Analyst’s Disclosure: I/we 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.

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (25)

Lincoln has been gradually but steadily declining of late. Any theories as to what gives?
I had viewed lincoln as very undervalued relative to its share performance over its history and its PE. Why do you think it has such a low PE ratio? Just a boring industry?
Big Froggie profile picture
Long Gilead
Uain53 profile picture
Actually LYB was taken out of bankruptcy around 2010 and has paid and increased it's dividend since 2011. I believe it made it to David Fish's Drip.org CCC list for >5 yrs of increasing dividends. I have owned it since 2012 and very pleased with the performance to date.
Gold Finder profile picture
But also lyb is overvalued and not the typical buyandhold stock.

I rode it from 70 till 100 dollars. I left because the high valuation breaks the power of the buybacks.
Uain53 profile picture
Ah yes, Mr. Gold, but they do keep rising the dividend. That's wot keeps me loiterin' about.
mellonhead profile picture
Yes, GILD is finally gaining some traction after purchase of Kite pharma.
It’s about time an author on here mentioned this jewel of a stock named Gild as an undervalued company. Four and a half years of underperforming and declining revenues with piss poor management. Glad it is FINALLY getting some undervalued articles on here.
GDPPP profile picture
Benjamin Clark, If you really want to know the most undervalued company in S&P500, it's Micron - $MU. Investors are still pricing in the stock for cyclicality and as a commodity business, but with potential tailwinds in Cloud, autonomous, AI, mobile, storage, PC, IOT markets, along with innovation in new products, the growth story in MU is still in it's early stages.
Benjamin Clark profile picture
MU's high debt level relative to its net current assets, lack of dividend, and unstable earnings over the last 5 years all scare me away. It doesn't meet my requirements for the Defensive Investor or the Enterprising Investor.
GDPPP profile picture
You are clearly looking at it backwards. Management has shown a commitment to reduce down that debt with ever increasing cash flows. IMO, It's a clear turnaround story under Sanjay Mehrotra.
Uain53 profile picture
DRAMs and NAND are still a commodity, like Wheat or Hog Bellies. Some years you make a bundle and other years you just try to survive. Also the cost to invest in new technologies and the time for depreciation are killers.
Worked in the industry for 40+ yrs, had more fun than one should be allowed while getting paid for it. But I don't invest in technology now.... too easy to think I know it all and get burnt.
Gold Finder profile picture
LYB is not cheap, overcapacity is always a risk in this sector and low oil prices are temporary boosts for this company.

A perfect example for a shiller p/e ratio.
Not to mention: foreign taxes.
Gold Finder profile picture
I owned them at 70 dollars and sold at 100 dollars. I never paid taxes since the dividends are british. While HQ is dutch. A bit weird.
Low oil prices are not boosting LYB. LYB primarily cracks North American NGL feedstocks although they do own a few liquid crackers in Europe. NGL crackers will gain even more advantage when oil rises forcing the cost of naphtha/oil based feeds higher. I agree that overcapacity is a concern in the next 5-10 yrs.
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