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We screened the consumer goods sector for stocks that appear undervalued relative to their cash flows, indicated by high ratios of levered free cash flow/enterprise value.

Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm's value from all ownership sources: market cap, outstanding debt, and preferred shares. When companies have ratios of levered free cash flow/enterprise value in excess of 10%, it may indicate that the company as a whole is being undervalued.

Considering top line growth is an important factor to evaluate the success of consumer stocks, we then screened for those with encouraging sales trends, as indicated by faster growth in revenue than accounts receivable year-over-year, as well as receivables comprising a smaller portion of current assets over the same time period.

Accounts receivable represents the portion of revenue not yet received, so the smaller the portion of revenue the better.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below.

Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.

1. Cooper Tire & Rubber Co. (CTB): Together with its subsidiaries, manufactures and markets replacement tires in North America and internationally. Market cap at $1.66B, most recent closing price at $26.40. Levered free cash flow at $214.53M vs. enterprise value at $1.77B (implies a LFCF/EV ratio at 12.12%). Revenue grew by 4.49% during the most recent quarter ($1,095.63M vs. $1,048.6M y/y). Accounts receivable grew by -6.1% during the same time period ($550.7M vs. $586.45M y/y). Receivables, as a percentage of current assets, decreased from 45.4% to 37.35% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).

2. National Presto Industries Inc. (NPK): Engages in the production and sale of housewares/small appliances, defense products, and absorbent products in North America. Market cap at $477.68M, most recent closing price at $69.33. Levered free cash flow at $41.42M vs. enterprise value at $373.48M (implies a LFCF/EV ratio at 11.09%). Revenue grew by 11.4% during the most recent quarter ($116.81M vs. $104.86M y/y). Accounts receivable grew by 0.33% during the same time period ($69.88M vs. $69.65M y/y). Receivables, as a percentage of current assets, decreased from 22.86% to 22.84% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-10-02).

3. Sanderson Farms, Inc. (SAFM): Engages in the production, processing, marketing, and distribution of fresh, frozen, processed, and prepared chicken products. Market cap at $1.13B, most recent closing price at $49.01. Levered free cash flow at $152.94M vs. enterprise value at $1.28B (implies a LFCF/EV ratio at 11.95%). Revenue grew by 15.82% during the most recent quarter ($648.38M vs. $559.84M y/y). Accounts receivable grew by -43.85% during the same time period ($102.49M vs. $182.53M y/y). Receivables, as a percentage of current assets, decreased from 41.68% to 25.76% during the most recent quarter (comparing 3 months ending 2012-10-31 to 3 months ending 2011-10-31).

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 3 Consumer Stocks With Encouraging Sales Trends And Undervalued By Levered Free Cash Flow