Do you prefer stocks trading at low share prices? If so, one thing to keep in mind is the possibility of "value traps," or stocks that appear to hold value with low share prices but in fact are trading there for a negative reason.
We decided to look for stocks that are undervalued by levered free cash flow/enterprise value. This will provide a starting point for your analysis. This ratio gives us the money that the business can use to grow and pay dividends to shareholders. Any possibility of a dividend payout nowadays is looked at positively. We also screened for stocks with a market cap of at least $300 million, and trading under $5.
Interactive Chart: Press Play to compare changes in market cap over the last two years for the five stocks mentioned below.
Do you think these stocks trading under $5 are a cheap bargain? Use this list as a starting point for your own analysis.
1. Alcatel-Lucent, S.A. (NYSE:ALU): Provides products, solutions, and transformation services that enable service providers, enterprises, governments, and strategic industries to deliver voice, data, and video communication services to end-users worldwide. Market cap at $3.26B, most recent closing price at $1.39. Levered free cash flow at $656.25M vs. enterprise value at $2.91B (implies a LFCF/EV ratio at 22.55%).
2. Crown Media Holdings Inc. (NASDAQ:CRWN): Through its subsidiary, Crown Media United States, LLC, owns and operates pay television channels in the United States and Puerto Rico. Market cap at $640.23M, most recent closing price at $1.85. Levered free cash flow at $161.37M vs. enterprise value at $1.09B (implies a LFCF/EV ratio at 14.8%).
3. Denison Mines Corp. (NYSEMKT:DNN): Engages in the exploration, development, mining, and milling of uranium primarily in the United States and Canada. Market cap at $470.46M, most recent closing price at $1.25. Levered free cash flow at $43.76M vs. enterprise value at $433.96M (implies a LFCF/EV ratio at 10.08%).
4. Ferro Corp. (NYSE:FOE): Engages in the production of specialty materials and chemicals for a range of manufacturers worldwide. Market cap at $359.14M, most recent closing price at $4.18. Levered free cash flow at $65.29M vs. enterprise value at $577.30M (implies a LFCF/EV ratio at 11.31%).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.