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The following is a list of stocks that are trading at a Price to Free Cash Flow (P/FCF) ratio lower than 5. In other words, these stocks appear to be undervalued, with free cash flow making up more than 20% of each company's overall valuation.

Additionally, all of these names have, on average, seen more insider buying than insider selling over the last two years (excluding exercised options). For each company we'll list the average number of shares purchased by insiders on the open market over the last two years.

Based on the enthusiasm of insiders, this list might offer an interesting starting point for your own analysis.

Insider data sourced from Fidelity, short float and performance data sourced from Finviz.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.



The list has been sorted by

1. American Equity Investment Life Holding Co. (AEL): Life Insurance Industry. Market cap of $790.15M. P/FCF ratio at 2.05.

Insiders purchased an average of 12,490 shares per year over the last two years. Short float at 10.86%, which implies a short ratio of 11.27 days. The stock has gained 91.34% over the last year.

Other Highlights:

- The company has demonstrated rapid cash flow growth over the last five years, which may lower their risk going forward. Five year average cash flow growth at 19.33%, much higher than the industry average at 5.09%.

- The company appears to have a very efficient workforce, which should help manage cost pressures going forward. Trailing twelve month Income/Employee stands at $194,211, higher than the industry average at $120,094. The company also outperformed on the Revenue/Employee metric ($3,305,660 vs. the industry average at $1,242,420).

- Institutional and mutual fund investors have been net purchasers of the company's shares over the last two quarters, suggesting that the smart money thinks there's more upside to the stock. Institutional investors have been net buyers of 6.5M shares during the most recent quarter, vs. 1.5M net shares purchased in the previous quarter. Mutual fund investors have also been optimistic on the stock. They were net buyers of 1.7M shares during the most recent quarter, vs. 3.3M net shares purchased in the previous quarter.

2. Clearwater Paper Corporation (CLW):
Paper & Paper Products Industry. Market cap of $918.4M. P/FCF ratio at 4.51.

Insiders purchased an average of 13,678 shares per year over the last two years. Short float at 2.74%, which implies a short ratio of 5.2 days. The stock has gained 55.88% over the last year.

Other Highlights:


- Judging by trailing twelve month (TTM) ratios like Return on Equity (ROE), Return on Assets (ROA) and Return on Invested Capital (ROI), it's clear that the company's management is doing an excellent job. TTM ROE at 21.59%, higher than the industry average at 11.81%, TTM ROA at 8.54% vs. the industry average at 2.79%, and TTM ROI at 15.59%, higher than the industry average at 10.84%. The company also outperformed its industry competitors in terms of the TTM Return on Sales ratio (6.2% vs. the industry average at 3.58%).

- The company has low debt and great liquidity, which significantly reduces its risk over the coming months. During the most recent quarter, the total Debt/Assets ratio stood at 14.79% vs. the industry average at 29.56%. Total Debt/Equity came in at 36.02%, lower than the industry average at 141.45%. The company also appears to be more liquid than its competitors. The TTM Current Ratio stands at 4.75, higher than the industry average at 1.71. (Note: All ratios based on the most recent quarter, annualized)

3. CNO Financial Group, Inc. (CNO): Accident & Health Insurance Industry. Market cap of $1.62B. P/FCF ratio at 2.16.

Insiders purchased an average of 143,000 shares per year over the last two years. Short float at 7.64%, which implies a short ratio of 11.42 days. The stock has gained 38.33% over the last year.

Other Highlights:

- The company appears to be undervalued relative to book value. Price/Book ratio at 0.4, much lower than the industry average of 1.33.

4. MCG Capital Corporation (MCGC): Asset Management Industry. Market cap of $556.92M. P/FCF ratio at 4.32.

Insiders purchased an average of 166,350 shares per year over the last two years. Short float at 2.51%, which implies a short ratio of 5.08 days. The stock has gained 64.33% over the last year.

Other Highlights:

- Over the last year, the company has proven itself to be more profitable than its industry competitors. Trailing twelve month (TTM) gross margin at 67.53%, higher than the industry average at 40.96%. TTM EBITD margin at 67.53% vs. industry average at 39.52%, while TTM operating margin came in at 62.77%, higher than the industry average at 32.29%. However, the company had a weaker than average pretax margin, reporting a ratio of 9.27%, lower than the industry average at 29.52%.

5. SUPERVALU Inc. (SVU): Grocery Stores Industry. Market cap of $1.75B. P/FCF ratio at 2.69.

Insiders purchased an average of 20,400 shares per year over the last two years. Short float at 20.85%, which implies a short ratio of 4.99 days. The stock has lost -42.46% over the last year.

Other Highlights:

- The company's capital spending accelerated by 20.98% over the last five years, much faster than the industry average of 1.25%. At least theoretically, this makes them more competitive over the coming years, since their operational assets are more up-to-date.

- Institutional and mutual fund investors have been net purchasers of the company's shares over the last two quarters, suggesting that the smart money thinks there's more upside to the stock. Institutional investors have been net buyers of 7.2M shares during the most recent quarter, vs. 10.2M net shares purchased in the previous quarter. Mutual fund investors have also been optimistic on the stock. They were net buyers of 4.4M shares during the most recent quarter, vs. 3.6M net shares purchased in the previous quarter.

6. ITT Educational Services Inc. (ESI): Education & Training Services Industry. Market cap of $2.18B. P/FCF ratio at 4.15.

Insiders purchased an average of 252,511 shares per year over the last two years. Short float at 19.58%, which implies a short ratio of 6.95 days. The stock has lost -29.4% over the last year.

Other Highlights:

- The company has a track record of outperforming its competitors. Over the last five years, EPS grew by 36.82%, higher than the industry average at 16.49%, while revenues grew by 18.34%, outperforming the industry average at 14.25%.

7. GenCorp Inc. (GY): Aerospace/Defense Industry. Market cap of $305.31M. P/FCF ratio at 2.33.

Insiders purchased an average of 276,712 shares per year over the last two years. Short float at 12.1%, which implies a short ratio of 15.6 days. The stock has gained 29.93% over the last year.

8. AOL, Inc. (AOL): Internet Information Providers Industry. Market cap of $2.27B. P/FCF ratio at 4.56.

Insiders purchased an average of 282,178 shares per year over the last two years. Short float at 5.93%, which implies a short ratio of 6.68 days. The stock has lost -11.06% over the last year.

Other Highlights:

- The company appears to be undervalued relative to book value. Price/Book ratio at 0.94, much lower than the industry average of 8.66.

9. PharMerica Corporation (PMC): Drug Stores Industry. Market cap of $371.65M. P/FCF ratio at 4.88.

Insiders purchased an average of 71,287 shares per year over the last two years. Short float at 7.79%, which implies a short ratio of 8.33 days. The stock has lost -24.3% over the last year.

Other Highlights:

- The company has demonstrated rapid cash flow growth over the last five years, which may lower their risk going forward. Five year average cash flow growth at 77.75%, much higher than the industry average at 18.66%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 9 Stocks With Low P/FCF Ratios, Boosted by Insider Buying