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.
Travelers Companies (TRV)
Travelers Companies qualifies for both the Defensive Investor and the Enterprising Investor. The company passes all of the requirements of both investor types, a rare accomplishment. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities. As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $5.25 in 2011 to an estimated $8.80 for 2015. This level of demonstrated growth outpaces the market's implied estimate of 1.61% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham's formula, to return an estimate of intrinsic value above the market price. (See the full valuation)
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.
