NEW YORK (TheStreet) -- How should investors pick among the great companies in the market today?
By using the ModernGraham Valuation Model, I've selected the five lowest PEmg (price per our measure of normalized earnings) companies that we review. Each company is suitable for the defensive investor -- someone not able or willing to do substantial research into individual investments, and therefore someone who needs to select only companies that present the least risk. Enterprising investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk.
Here are our picks to consider.
1. National Presto Industries (NPK)National Presto Industries is a strong company that fares well in our metrics. The company only fails the market cap requirement of the defensive investor. All value investors should feel comfortable proceeding with further research into the company. There's one hitch: the company appears to be overvalued at the current time. National Presto has grown EPSmg (our measure of normalized earnings) from $6.60 in 2009 to $6.73 in 2013, a very low level of growth that does not support the market's current implied estimate of 0.83% earnings growth. The ModernGraham valuation model has accordingly estimated an intrinsic value that falls below a margin of safety in relation to the price.
NPK data by YCharts 2. Ensco (ESV) Ensco is suitable for either the defensive investor or the enterprising investor. The defensive investor's only concern is the low current ratio, but the company passes all of the other requirements. The enterprising investor has some concerns, but since the company is suitable for defensive investors it is by default also suitable for enterprising investors. Value investors should feel very comfortable proceeding with further research into the company. From a valuation perspective, the company does not fare very well after seeing a drop in EPSmg (our measure of normalized earnings) from $6.13 in 2009 to $4.91 for 2013. This lack of demonstrated earnings growth does not support the market's implied estimate of 1.0% earnings growth and leads our valuation model to return an estimate of intrinsic value that is well below the market price. ESV data by YCharts Up next: Chevron.
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