10 Companies Benjamin Graham Would Invest In Today – September 2015

Out of the multitude of companies, which ones would legendary value investor Benjamin Graham buy today? I’ve compiled ten great companies that fit the ModernGraham criteria, based on Benjamin Graham’s methods. The companies in this list pass the rigorous requirements of either the Defensive Investor or the Enterprising Investor and are undervalued by the market.

Here are the ten companies Benjamin Graham would invest in today:

Aflac Inc. (AFL)

Aflac passes the initial requirements of both the Defensive Investor and the Enterprising Investor. In fact, the company passes every requirement of both investor types, which is a rare accomplishment indicative of the company’s strong financial position. As a result, all value 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 $3.89 in 2011 to an estimated $6.13 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of only 0.87% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 11.5% 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 Aflac is significantly undervalued at the present time. (See the full valuation)

CF Industries Holdings (CF)

CF Industries passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only concerned by the low current ratio, while the Enterprising Investor’s only concern is the level of debt relative to the net current assets. As a result, all value 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 $2.46 in 2011 to an estimated $4.82 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of only 2.33% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 19.25% 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 CF Industries is significantly undervalued at the present time. (See the full valuation)