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A company’s revenue, earnings, and other reported figures are greatly affected by the accounting choices made by management. Measuring the risk that these reported numbers deviate significantly from reality should always be an important part of your stock evaluation process.

With that in mind, we screened stocks that are currently undervalued relative to free cash flow, with P/FCF below 5. Among those stocks, we found those that according to forensic accounting firm Audit Integrity have conservative accounting and governance risk. This is measured by Audit Integrity’s AGR score, with scores closer to 100 reflecting more conservative accounting practices.

Given the greater reliability of these firms’ earnings, do you think they’re more likely to persist? Use this list as a starting-off point for your own analysis.

List sorted by AGR score.

1. Transatlantic Holdings Inc. (TRH): Property & Casualty Insurance Industry. Market cap of $3.08B. P/FCF at 3.05. According to Audit Integrity, the company has Conservative accounting and governance risk, with an AGR score of 100. The stock has gained 0.84% over the last year.

2. Boise Inc. (BZ): Paper & Paper Products Industry. Market cap of $817.12M. P/FCF at 4.59. According to Audit Integrity, the company has Conservative accounting and governance risk, with an AGR score of 99. This is a risky stock that is significantly more volatile than the overall market (beta = 3.47). Short float at 24.79% (equivalent to 8.45 days of average volume), indicating BZ is a short squeeze candidate. The stock has had a couple of great days, gaining 11.46% over the last week.

3. Aspen Insurance Holdings Ltd. (AHL): Property & Casualty Insurance Industry. Market cap of $2.02B. P/FCF at 3.75. According to Audit Integrity, the company has Conservative accounting and governance risk, with an AGR score of 97. The stock has a relatively low correlation to the market (beta = 0.66), which may be appealing to risk-averse investors. The stock has gained 8.14% over the last year.

4. Great Lakes Dredge & Dock Corporation (GLDD): Heavy Construction Industry. Market cap of $437.76M. P/FCF at 4.64. According to Audit Integrity, the company has Conservative accounting and governance risk, with an AGR score of 97. The stock is a short squeeze candidate, with a short float at 5.06% (equivalent to 6.29 days of average volume). The stock has gained 38.99% over the last year.

5. Boyd Gaming Corp. (BYD): Resorts & Casinos Industry. Market cap of $771.25M. P/FCF at 3.9. According to Audit Integrity, the company has Conservative accounting and governance risk, with an AGR score of 94. This is a risky stock that is significantly more volatile than the overall market (beta = 2.47). The stock is a short squeeze candidate, with a short float at 32.2% (equivalent to 6.96 days of average volume). The stock has lost 29.61% over the last year.

6. Delphi Financial Group, Inc. (DFG): Life Insurance Industry. Market cap of $1.74B. P/FCF at 4.92. According to Audit Integrity, the company has Conservative accounting and governance risk, with an AGR score of 94. The stock is a short squeeze candidate, with a short float at 5.38% (equivalent to 13.68 days of average volume). The stock has gained 18.55% over the last year.

7. Aircastle LTD (AYR): Rental & Leasing Services Industry. Market cap of $982.72M. P/FCF at 2.86. According to Audit Integrity, the company has Conservative accounting and governance risk, with an AGR score of 93. This is a risky stock that is significantly more volatile than the overall market (beta = 2.3). The stock has gained 8.07% over the last year.

8. CNO Financial Group, Inc. (CNO): Accident & Health Insurance Industry. Market cap of $2.04B. P/FCF at 2.78. According to Audit Integrity, the company has Conservative accounting and governance risk, with an AGR score of 93. This is a risky stock that is significantly more volatile than the overall market (beta = 2.55). The stock is a short squeeze candidate, with a short float at 8.53% (equivalent to 10.35 days of average volume). The stock is exhibiting strong upside momentum--currently trading 5.02% above its SMA20, 10.11% above its SMA50, and 29.48% above its SMA200. The stock has had a couple of great days, gaining 7.47% over the last week.

9. Calamos Asset Management Inc. (CLMS): Asset Management Industry. Market cap of $327.35M. P/FCF at 2.39. According to Audit Integrity, the company has Conservative accounting and governance risk, with an AGR score of 89. This is a risky stock that is significantly more volatile than the overall market (beta = 3.27). The stock has gained 33.91% over the last year.

*AGR score sourced from Audit Integrity, all other data sourced from Finviz.

Source: Value Ideas: 9 Undervalued Stocks with Conservative Accounting Principles