Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – July 2015. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how E I du Pont de Nemours & Company (DD) fares in the ModernGraham valuation model.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7
Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
Earnings Stability – positive earnings per share for at least 10 straight years – PASS
Dividend Record – has paid a dividend for at least 10 straight years – PASS
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 – PASS
Moderate PEmg ratio – PEmg is less than 20 – PASS
Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
Sufficiently Strong Financial Condition, Part 2 – debt to Net Current Assets ratio less than 1.1 – PASS
Earnings Stability – positive earnings per share for at least 5 years – PASS
Dividend Record – currently pays a dividend – PASS
Earnings growth – EPSmg greater than 5 years ago – PASS
