10 Low PE Stocks For The Defensive Investor

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the ten lowest PEmg (price / normalized earnings) companies reviewed by ModernGraham. Each company has been determined to be undervalued and suitable for the Defensive Investor according to the ModernGraham approach.

Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of 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. Defensive Investors may also be interested in reviewing 10 Most Undervalued Companies for the Defensive Investor – August 2015 while also conducting further research into the following companies.

Here are the 10 Low PE Stocks for the Defensive Investor:

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)

Fossil Group Inc. (FOSL)

Fossil Group performs well in the ModernGraham model and is suitable for both Defensive and Enterprising Investors. Both investor types are only initially concerned by the lack of dividend payments. 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 valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $1.68 in 2011 to an estimated $6.01 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 1.68% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 16% annually, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time. (See the full valuation)