The Best Companies Of The Food Processing Industry – October 2015

While ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself.  With that in mind, this article will take a brief look at the best companies of the auto industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.

Out of the more than 560 companies reviewed by ModernGraham, 20 were identified as being closely related to the auto industry. Of those, only none are suitable for the Defensive Investor, seven are suitable for the Enterprising Investor, and the remaining thirteen are considered speculative at this time. Excluding any extreme outliers, the average company was rated as being priced at 154.28% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 26.64. The industry as a whole, therefore would appear to be undervalued, particularly in comparison to the market (see Mr. Market’s Mental State).

The Elite

The following companies have been rated as undervalued and suitable for either the Defensive Investor or the Enterprising Investor:

Keurig Green Mountain Inc (GMCR)

Keurig Green Mountain Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the short dividend record and the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.71 in 2011 to an estimated $3.08 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.86% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price. (See the full valuation)