We evaluated 24 different companies this week to determine whether they are suitable for Defensive Investors, those unwilling to do substantial research, or Enterprising Investors, those who are willing to do such research. We also put each company through the ModernGraham valuation model based on Benjamin Graham's value investing formulas in order to determine an intrinsic value for each. Out of those 24 companies, only 8 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors. Here's a summary of those 8 best stocks for value investors this week. To see a listing and screenings of all the valuations, be sure to sign up to be a premium subscriber!
The Elite
The following companies were found to be suitable for either the Defensive Investor or Enterprising Investor and undervalued:
American Express Company (AXP)
American Express passes the initial requirements of the Enterprising Investor but not the Defensive Investor. In fact, the company passes every requirement of the Enterprising Investor types, but the Defensive Investor is concerned by the high PB ratio. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company's intrinsic value.
When it comes to that valuation, it is critical to consider the company's earnings history. In this case, it has grown its EPSmg (normalized earnings) from $3.11 in 2011 to an estimated $4.99 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market's implied estimate for annual earnings growth of 3.43% over the next 7-10 years.
In recent years, the company's actual growth in EPSmg has averaged around 12% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that American Express is significantly undervalued at the present time. (See the full valuation)
American Financial Group Inc. (AFG)
American Financial Group Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The company passes all of the initial requirements of both investor types, an indication that the company has a very strong financial position. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with the evaluation. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.58 in 2011 to an estimated $5.01 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.82% 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. (See the full valuation)
