5 Undervalued Companies For Value Investors With A Low Beta – January 2017

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Stella-Jones Inc (TSE:SJ)

Stella-Jones Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. 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 $0.84 in 2012 to an estimated $1.9 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.88% 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 Stella-Jones Inc revealed the company was trading above its Graham Number of $27.89. The company pays a dividend of $0.38 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 22.26, 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 $2.03.  (See the full valuation)

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Equity Residential (EQR)

Equity Residential 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 $2.15 in 2012 to an estimated $5.79 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.39% 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.

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Disclaimer:The author held a long position in Starwood Property Trust (STWD) and Western Refining Inc (WNR) but did not hold a position in any other company mentioned in this article at the ...

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