We evaluated 29 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 29 companies, only 9 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. 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:
Bank of New York Mellon (BK)
Bank of New York Mellon 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.
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 $1.30 in 2011 to an estimated $2.14 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market's implied estimate for annual earnings growth of only 5.72% over the next 7-10 years.
In recent years, the company's actual growth in EPSmg has averaged nearly 13% 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 Bank of New York Mellon is significantly undervalued at the present time. (See the full valuation)
Fifth Third Bancorp (FITB)
Fifth Third 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 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.
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 $0.31in 2011 to an estimated $1.67 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market's implied estimate for annual earnings growth of only 2% over the next 7-10 years.
