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Most Wall Street analysts define free cash flow as operating cash flows minus capital expenditures. We prefer to look at Net Income plus Depreciation minus capital expenditures because changes in working capital do not represent true sustainable owner earnings. Increases in Accounts Payable, increases in Short Term Liabilities, and decreases in Inventory are often shorter term line items that do not represent the true earnings power of a business. Borrowing money is not the same as making money, so we try to discount these items using Warren Buffett's more simplified "Owner's Earnings" approach. Here are 5 stocks that look relatively cheap based on free cash flows and EV/EBITDA metrics.

AMAT -- Applied Materials hit our screens because the company currently trades for approximately 10X owner earnings. Revenues and earnings are up substantially with a year over year growth rate of 25% on a quarterly basis. We are less enthusiastic about tech stocks presently, as many times these businesses are too cyclical and complicated for us to understand. That being said, AMAT shares look reasonable here at 10 earnings and with around $2.4BN in cash with a $16BN market cap.

JNJ -- Johnson and Johnson shares have rallied substantially but the stock still looks cheap based on owner earnings. JNJ owner earnings are approximately $14BN on a market cap of $184BN. While not a screaming bargain, the stock does represent strong value as the brand and moat here are sustainable over the longer term in our view. We also think that JNJ has a strong patent portfolio and drugs in the pipeline that could drive shareholder returns in the future.

WMT -- Wal-Mart is a cheap stock right now and with its recent labor union win in court, the upside for the stock is fairly significant in our opinion. WMT delivered $12BN of owner earnings over the past year on a market cap of $184BN, giving the company a nice margin of safety. Wal-Mart also repurchased roughly $14BN of stock over the past year, which suggests the company believes in the value of the shares that current prices represent. I like the name, but would rather be long the in the money call options here as a way to limit risk on the downside.

TGT -- Target shares have been hit in recent weeks and trade very close to a 52 week low. We like the name at just 6X EV/EBITDA and think the stock could easily outperform over the next few years given the discount to owner earnings yield and the company's strong competitive position. With gas prices falling and a possible tax on online retail in the mix, TGT and WMT seem like reasonable investment ideas. Target is trading for less than 10X Owner Earnings at present.

COP -- Conoco will still make investors some money-- even with a sharp drop in crude prices. This is due to the fact that the integrated giant is cheap on Owner Earnings and will be profitable regardless of the short term movement in oil prices. That said, there are risks for the firm if oil trades substantially lower from here, but with Peter Schiff and many others stating that QE3 is a near certainty, much lower oil prices don't seem to be in the cards any time soon. Conoco is trading for roughly 10X Owner Earnings.


Disclosure: I am long TGT, WMT, AMAT.

Source: 5 Deep Value Buys: Screening for Cheap Stocks Based on Free Cash Flows