10 Low PE Stock Picks For The Defensive Investor – August 2018

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CVS Health Corp (CVS)

CVS Health Corp qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value 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 $3.43 in 2014 to an estimated $5.67 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.57% 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 CVS Health Corp revealed the company was trading below its Graham Number of $72.47. The company pays a dividend of $2 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.64, which was below the industry average of 37.1, 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 $-24.2. (See the full valuation)

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Cardinal Health Inc (CAH)

Cardinal Health Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value 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 $2.48 in 2014 to an estimated $4.43 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.14% 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 Cardinal Health Inc revealed the company was trading above its Graham Number of $50.88. The company pays a dividend of $1.81 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.78, which was below the industry average of 43.8, 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 $-32.02. (See the full valuation)

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Disclaimer: The author held a long position in IVZ but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of ...

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