We evaluated 40 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 40 companies, only 20 were found to be undervalued or fairly valued and suitable for either Defensive or Enterprising Investors. Here's a summary of those 9 best stocks for value investors this week.
The Elite
The following companies were found to be suitable for either the Defensive Investor or Enterprising Investor and undervalued:
Cognizant Technology Solutions (CTSH)
Cognizant Technology Solutions passes the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the lack of dividends, as well as the high PEmg and PB ratio. The Enterprising Investor is only initially concerned by the lack of dividends. 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 $1.11 in 2011 to an estimated $2.33 for 2015. This level of demonstrated growth outpaces the market's implied estimate for annual earnings growth of 8.8% over the next 7-10 years.
In recent years, the company's actual growth in EPSmg has averaged around 22% annually. The ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate but still returns an estimate of intrinsic value well above the current price, indicating that Cognizant Technology Solutions is undervalued at the present time. (See the full valuation on Guru Focus)
Dow Chemical (DOW)
Dow Chemical is not suitable for Defensive Investors but it does pass the initial requirements of the DOWInvestor. The Defensive Investor is concerned with the low current ratio, the insufficient earnings growth over the last ten years, and the high PB ratio, while the Enterprising Investor's only concern is the level of debt relative to the net current assets. 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 $1.49 in 2011 to an estimated $2.65 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market's implied estimate for annual earnings growth of 5.61% over the next 7-10 years.
In recent years, the company's actual growth in EPSmg has averaged considerably 15.59% 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 Dow Chemical is significantly undervalued at the present time. (See the full valuation)
D.R. Horton Inc. (DHI)
D.R. Horton is not suitable for Defensive Investors but it does pass the initial requirements of the Enterprising Investor. The Defensive Investor is concerned with the insufficient earnings growth or stability over the last 10 years, while the Enterprising Investor has no initial concerns. 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 a loss of $1.33 in 2011 to an estimated gain of $1.65 for 2015. This is a fairly strong level of demonstrated growth and outpaces the market's implied estimate for annual earnings growth of only 4.08% over the next 7-10 years.
In recent years, the company's actual growth in EPSmg has averaged considerably more than the market's estimate 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 D.R.Horton is significantly undervalued at the present time, a result which is in line with some of its peers. (See the full valuation)
Keurig Green Mountain Inc. (GMCR)
Keurig Green Mountain Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the short dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising 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 $0.71 in 2011 to an estimated $3.17 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 6.72% 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)
MetLife Inc. (MET)
MetLife 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 lack of earnings stability and insufficient earnings growth over the last ten years. 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.
