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5 Undervalued Companies for Enterprising Investors

NEW YORK (TheStreet) -- It's hard to find value in companies today.

By using the ModernGraham Valuation Model, I've selected the five most undervalued companies. Each company has been determined to be suitable for the enterprising investor according to the ModernGraham approach, based on Benjamin Graham's methods. Enterprising investors are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. You may also be interested in reviewing "5 Undervalued Companies for the Defensive Investor," which presents options for more conservative, less research-oriented investors.

This month, Apple (AAPL) has dropped off the list and is replaced by Discover Financial Services (DFS).

1. Ford Motor

Ford Motor (F - Get Report) remains unsuitable for the defensive investor due to its lack of stability in earnings and dividends over the ten year period. The enterprising investor looks at a much shorter time horizon, though, and the company passes all of the requirements for this investor type.

As for a valuation, the company performs well after growing its EPSmg (normalized earnings) from -$3.60 in 2008 to $2.23 for 2013. This solid level of growth is not reflected in the market, as the market is currently implying a growth rate estimate of -0.70%.  In other words, the market price indicates an expectation that the company's EPSmg will shrink by 0.70% annually over the next 7 to 10 years. Clearly this assumption is not supported by the historical achievements of the company, and our valuation model accordingly returns an intrinsic value estimate that exceeds the market price. 

F Chart

F data by YCharts

2. Freeport-McMoRan Copper & Gold

FreePort-McMoran (FCX) has not consistently paid dividends over the last ten years, and it has not shown earnings stability over the last ten years. But it does pass the requirements of the enterprising investor, though it has a higher level of debt relative to current assets than the investor type likes to see. 

From a valuation perspective, the stock is affected significantly by the large earnings loss in 2008, which has caused the EPSmg (normalized earnings) figure for 2009 to be very low in relation to 2013. As it stands, the EPSmg has grown from -$1.67 to $3.48, indicating a high level of growth that would appear to significantly outpace the market's implied estimate of 0.76% earnings growth. This has led the model to return an intrinsic value estimate that is well above the market price, and the overall result that the company is undervalued is supported by the valuation based on only 3% growth.

FCX Chart

FCX data by YCharts

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COF $62.54 0.00%
F $11.55 0.00%
AAPL $93.99 0.00%
FB $102.01 0.00%
GOOG $682.40 0.00%


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