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Many investors prefer using free cash flow instead of net income to measure a company's financial performance, because free cash flow is more difficult to manipulate. Free cash flow is the operating cash flow minus capital expenditure.

I have searched for very profitable companies with very low price to cash flow among Technology sector stocks. Those stocks would have to show also a very low debt. I also looked for companies that are in short-term uptrend, in mid-term uptrend and in long-term uptrend. Stocks in an uptrend are performing well and are in a buying mode.

I have elaborated a screening method which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.

The screen's formula requires all stocks to comply with all following demands:

  1. Price to free cash flow is less than 8.

  2. Trailing P/E is less than 13.

  3. Forward P/E is less than 9.

  4. Price to sales ratio is less than 1.

  5. Debt to equity is less than 0.35.

  6. Stock price is above 20-day simple moving average (short-term uptrend).

  7. Stock price is above 50-day simple moving average (mid-term uptrend).

  8. Stock price is above 200-day simple moving average (long-term uptrend).

After running this screen on February 17, 2013, I discovered the following three stocks:

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IDT Corporation (NYSE:IDT)

IDT Corporation operates as a telecommunications company. The company operates in two segments, Telecom Platform Services and Consumer Phone Services.

IDT Corporation has a very low debt (the total debt to equity is only 0.33), and the trailing P/E is very low at 5.17 and the forward P/E is also very low at 6.68. The price to free cash flow for the trailing 12 months is very low at 4.48, and the price-to-sales ratio is only 0.16.

The stock price is 4.56% above its 20-day simple moving average, 8.18% above its 50-day simple moving average and 11.38% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend. The stock is trading 2.82% below its 52-week high and has 50% upside potential based on the consensus mean target price of $16.00.

On December 10, 2012, IDT Corporation reported its financial and operational results for the first quarter fiscal 2013, which beat expectations on EPS and on revenues. In the report, Howard Jonas, IDT's Chairman and CEO, said:

We again delivered positive results this quarter. IDT Telecom generated healthy revenue, gross profit and bottom line increases, while Fabrix and Zedge are also making excellent progress. Looking ahead, we are confident that the investments we are making in technology, new product development and other initiatives will continue to drive growth.

Also in the report, the company said:

IDT's Board of Directors declared a special cash dividend of $0.60 per share which was paid on November 13, 2012, and suspended payment of the Company's regular $0.15 per share quarterly dividend for fiscal 2013. Future dividends will be at a level commensurate with the Company's financial results, strategic goals and available resources.

The compelling valuation metrics, the 50% upside potential based on the consensus mean target price of $16.00, the good first quarter financial results, and the fact that the stock is in an uptrend are all factors that make IDT stock quite attractive.

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Chart: finviz.com

RELM Wireless Corp. (NYSEMKT:RWC)

RELM Wireless Corporation engages in the design, manufacture, and marketing of wireless communications products in the United States and internationally.

RELM Wireless has no debt at all, and it has a very low trailing P/E of 12.68 and even a lower forward P/E of 8.75, the PEG ratio is very low at 0.54. The price to free cash flow for the trailing 12 months is very low at 7.62. The company has a very strong growth prospects; the EPS growth for this year is 25.49%, and the expected EPS growth for the next year is very high at 42.86%, and the average annual earnings growth estimates for the next 5 years is also very high at 22.50%. The RWC stock is trading below book value, the price to book value ratio is only 0.80, and the current ratio is very high at 5.14.

The stock price is 3.95% above its 20-day simple moving average, 3.53% above its 50-day simple moving average and 5.49% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend. The company is trading 16.67% below its 52-week high and has 300% upside potential based on the consensus mean target price of $7.00.

On November 14, 2012, RELM Wireless reported its 3Q financial results. In the report, the company said that for the quarter ended September 30, 2012, sales totaled approximately $8.1 million, compared with approximately $7.0 million for the third quarter last year. Pretax income for the quarter ended September 30, 2012 was approximately $1.4 million, compared with approximately $939,000 for the third quarter last year.

The very cheap valuation metrics, the strong growth prospects, and the fact that the stock is in an uptrend are all factors that make RWC stock quite attractive.

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Chart: finviz.com

SL Industries Inc. (NYSEMKT:SLI)

SL Industries, Inc., through its subsidiaries, engages in the design, manufacture, and marketing of power electronics, motion control, power protection, and specialized communication equipment in the United States and internationally.

SL Industries has no debt at all, and it has a very low trailing P/E of 9.13 and even a lower forward P/E of 7.51. The price to free cash flow for the trailing 12 months is very low at 7.80, and the price-to-sales ratio is only 0.38.

The stock price is 3.48% above its 20-day simple moving average, 2.91% above its 50-day simple moving average and 27.93% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.

On November 06, 2012, SL Industries reported its 3Q financial results. Net sales from continuing operations for the quarter ended September 30, 2012, were $50.9 million, down 2% compared with net sales from continuing operations for the quarter ended September 30, 2011 of $52.1 million. Income from continuing operations for the quarter ended September 30, 2012 was $2.9 million, or $0.69 per diluted share, compared to income from continuing operations of $2.5 million, or $0.55 per diluted share, for the quarter ended September 30, 2011.

The compelling valuation metrics, and the fact that the stock is in an uptrend are all factors that make SLI stock quite attractive.

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Chart: finviz.com

Source: 3 Tech Stocks In Uptrend With Very Low Price To Cash Flow