There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected five undervalued companies with a low beta reviewed by ModernGraham.
A company's beta indicates the correlation at which its price moves in relation to the market. A beta less than 1 indicates a company is less 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 low beta, Mr. Market may not hit these companies as harshly in a downturn, so be sure to check them out in depth!
LGI Homes Inc (LGIH)
LGI Homes Inc 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 over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. 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 $0.39 in 2013 to an estimated $2.76 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.6% 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 LGI Homes Inc revealed the company was trading below its Graham Number of $36.13. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 11.7, 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 $15.24. (See the full valuation)
