We developed an investment thesis based on the discounted cash flow valuations of some of the most credit worthy companies in the S&P 500. All of them blue chips, trading at substantial discounts to their net worth, we called this “Seeking Blue”. You can see our original analysis at http://workshops.saxangle.com/seeking-blue/. We decided to revisit this valuation. The bottom line is that many of these companies remain substantially undervalued. And this is with our pessimistic scenario of zero growth and pressure on operating margins.
The results from July 18,2012 are below:
| Description | Ticker | Price 7/18/12 | 5/3/13 | Change |
| Pfizer | PFE | $23.14 | $28.96 | 25.2% |
| Intel | INTC | $26.21 | $23.96 | -8.6% |
| Kellogg | K | $48.06 | $63.66 | 32.5% |
| Proctor & Gamble | PG | $64.81 | $78.19 | 20.6% |
| Exxon Mobil | XOM | $85.34 | $90.02 | 5.5% |
| Intl Bus. Machines | IBM | $183.65 | $204.51 | 11.4% |
| McDonald’s | MCD | $91.82 | $102.92 | 12.1% |
| Wal-Mart | WMT | $72.98 | $79.25 | 8.6% |
| Verizon | VZ | $45.25 | $52.68 | 16.4% |
| Coca-Cola | KO | $38.95 | $42.24 | 8.5% |
Current Prices: As you can see there is a lot left to go on some of these names.
| Description | Ticker | Price 5/1/13 | DCF Valuation | % Difference |
| Pfizer | PFE | $28.96 | $38.71 | 33.7% |
| Intel | INTC | $23.96 | $42.42 | 77.0% |
| Kellogg | K | $63.66 | $76.20 | 19.7% |
| Proctor & Gamble | PG | $78.19 | $95.62 | 22.3% |
| Exxon Mobil | XOM | $90.02 | $120.60 | 34.0% |
| Intl Bus. Machines | IBM | $204.51 | $254.02 | 24.2% |
| McDonald’s | MCD | $102.92 | $121.53 | 18.1% |
| Wal-Mart | WMT | $79.25 | $91.42 | 15.4% |
| Verizon | VZ | $52.68 | $56.27 | 6.8% |
| Coca-Cola | KO | $42.24 | $35.71 | -15.5% |
It’s important to understand though that we haven’t done any analysis beyond normalizing earnings and plugging these names into our DCF model. For example Pfizer’s earnings might be declining with their patent cliff, Intel’s margins may be permanently damaged with their lack of momentum in mobile, and Exxon is exposed to commodity prices that a DCF model has no idea of where the price of crude or natural gas is heading. As always do your own analysis so you will be comfortable with investment decisions.