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One way to search for potentially undervalued firms is by using the ratio levered free cash flow/enterprise value. Companies with high ratios may be undervalued.

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. From this value we subtract cash holdings because, in the event of a takeover, that cash would be used toward the takeover price.

We used this ratio to screen for potentially undervalued stocks among the universe of technically oversold stocks (with RSI(14) below 40). We also screened for stocks that appear to be undervalued relative to earnings growth (with PEG < 1).

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.

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month.

(Click chart to expand)

Do you think these stocks are undervalued? Use this list as a starting-off point for your own analysis.

List sorted by levered free cash flow/enterprise value.

1. Horace Mann Educators Corp. (NYSE:HMN): Property & Casualty Insurance Industry. Market cap of $598.60M. RSI(14) at 38.64. PEG at 0.92. Levered free cash flow/enterprise value at 40.30% (levered free cash flow at $286.35M and enterprise value at $710.47M). It's been a rough couple of days for the stock, losing 5.6% over the last week.

2. Power-One Inc. (NASDAQ:PWER): Diversified Electronics Industry. Market cap of $775.15M. RSI(14) at 35.92. PEG at 0.35. Levered free cash flow/enterprise value at 26.89% (levered free cash flow at $152.63M and enterprise value at $567.65M). This is a risky stock that is significantly more volatile than the overall market (beta = 2.16). The stock is a short squeeze candidate, with a short float at 29.74% (equivalent to 10.14 days of average volume). It's been a rough couple of days for the stock, losing 6.15% over the last week.

3. American International Group, Inc. (NYSE:AIG): Property & Casualty Insurance Industry. Market cap of $54.06B. RSI(14) at 39.92. PEG at 0.29. Levered free cash flow/enterprise value at 24.03% (levered free cash flow at $622.25M and enterprise value at $2.59B). It's been a rough couple of days for the stock, losing 5.66% over the last week.

4. ReneSola Ltd. (NYSE:SOL): Semiconductor Industry. Market cap of $398.64M. RSI(14) at 31.02. PEG at 0.12. Levered free cash flow/enterprise value at 22.31% (levered free cash flow at $156.96M and enterprise value at $703.41M). This is a risky stock that is significantly more volatile than the overall market (beta = 2.94). It's been a rough couple of days for the stock, losing 7.46% over the last week.

5. Tessera Technologies Inc. (NASDAQ:TSRA): Semiconductor Equipment & Materials Industry. Market cap of $799.52M. RSI(14) at 38.86. PEG at 0.54. Levered free cash flow/enterprise value at 21.17% (levered free cash flow at $63.52M and enterprise value at $299.99M). The stock has lost 4.28% over the last year.

6. ASM International NV (NASDAQ:ASMI): Semiconductor Equipment & Materials Industry. Market cap of $1.74B. RSI(14) at 27.25. PEG at 0.4. Levered free cash flow/enterprise value at 20.56% (levered free cash flow at $275.56M and enterprise value at $1.34B). This is a risky stock that is significantly more volatile than the overall market (beta = 2.34). It's been a rough couple of days for the stock, losing 19.82% over the last week.

7. Kulicke & Soffa Industries Inc. (NASDAQ:KLIC): Semiconductor Equipment & Materials Industry. Market cap of $694.08M. RSI(14) at 34.58. PEG at 0.33. Levered free cash flow/enterprise value at 17.40% (levered free cash flow at $89.43M and enterprise value at $514.00M). This is a risky stock that is significantly more volatile than the overall market (beta = 2.69). It's been a rough couple of days for the stock, losing 17.96% over the last week.

8. Artio Global Investors Inc. (NYSE:ART): Asset Management Industry. Market cap of $633.93M. RSI(14) at 28.57. PEG at 0.6. Levered free cash flow/enterprise value at 17.23% (levered free cash flow at $106.57M and enterprise value at $618.61M). The stock is a short squeeze candidate, with a short float at 7.53% (equivalent to 8.52 days of average volume). It's been a rough couple of days for the stock, losing 12.07% over the last week.

9. Ford Motor Co. (NYSE:F): Auto Manufacturers Industry. Market cap of $49.72B. RSI(14) at 38.76. PEG at 0.9. Levered free cash flow/enterprise value at 16.68% (levered free cash flow at $21.72B and enterprise value at $130.19B). This is a risky stock that is significantly more volatile than the overall market (beta = 2.38). It's been a rough couple of days for the stock, losing 7.29% over the last week.

10. Teradyne Inc. (NYSE:TER): Semiconductor Equipment & Materials Industry. Market cap of $2.52B. RSI(14) at 38.52. PEG at 0.86. Levered free cash flow/enterprise value at 15.55% (levered free cash flow at $283.03M and enterprise value at $1.82B). The stock is a short squeeze candidate, with a short float at 11.7% (equivalent to 5.9 days of average volume). It's been a rough couple of days for the stock, losing 10.4% over the last week.

11. LTX-Credence Corporation (LTXC): Semiconductor Equipment & Materials Industry. Market cap of $410.11M. RSI(14) at 38.44. PEG at 0.42. Levered free cash flow/enterprise value at 14.52% (levered free cash flow at $38.22M and enterprise value at $263.21M). This is a risky stock that is significantly more volatile than the overall market (beta = 2.57). It's been a rough couple of days for the stock, losing 10.87% over the last week.

12. JAKKS Pacific, Inc. (NASDAQ:JAKK): Toys & Games Industry. Market cap of $485.97M. RSI(14) at 38.8. PEG at 0.9. Levered free cash flow/enterprise value at 14.28% (levered free cash flow at $43.05M and enterprise value at $301.38M). The stock is a short squeeze candidate, with a short float at 14.27% (equivalent to 25.95 days of average volume). The stock has gained 26.58% over the last year.

13. Cellcom Israel Ltd. (NYSE:CEL): Wireless Communications Industry. Market cap of $2.63B. RSI(14) at 30.42. PEG at 0.78. Levered free cash flow/enterprise value at 13.55% (levered free cash flow at $475.58M and enterprise value at $3.51B). The stock is currently stuck in a downtrend, trading 5.36% below its SMA20, 8.9% below its SMA50, and 12.21% below its SMA200. It's been a rough couple of days for the stock, losing 5.24% over the last week.

14. Veeco Instruments Inc. (NASDAQ:VECO): Semiconductor Equipment & Materials Industry. Market cap of $1.67B. RSI(14) at 29.37. PEG at 0.47. Levered free cash flow/enterprise value at 13.12% (levered free cash flow at $139.09M and enterprise value at $1.06B). This is a risky stock that is significantly more volatile than the overall market (beta = 2.46). The stock is a short squeeze candidate, with a short float at 24.62% (equivalent to 7.19 days of average volume). It's been a rough couple of days for the stock, losing 9.14% over the last week.

15. GameStop Corp. (NYSE:GME): Electronics Stores Industry. Market cap of $3.37B. RSI(14) at 28.32. PEG at 0.76. Levered free cash flow/enterprise value at 12.79% (levered free cash flow at $411.85M and enterprise value at $3.22B). The stock is a short squeeze candidate, with a short float at 24.49% (equivalent to 8.31 days of average volume). It's been a rough couple of days for the stock, losing 12.45% over the last week.

*Levered free cash flow and enterprise value data sourced from Yahoo! Finance, all other data sourced from Finviz.

Source: 15 Oversold Stocks Undervalued by Earnings Growth and Free Cash Flow