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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 towards the takeover price.

We used this ratio to screen for potentially undervalued stocks among the universe of the 200 largest stocks by market cap from the tech sector.

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. To access a complete analysis of this list's recent performance, click here.

Do you think the market is undervaluing these names? Use this list as a starting-off point for your own analysis.

List sorted by LFCF/EV.

1. Agilent Technologies Inc. (A): Provides bio-analytical and electronic measurement solutions to the communications, electronics, life sciences, and chemical analysis industries in the United States and internationally. Market cap at $12.47B. Levered free cash flow at $2.12B vs. enterprise value at $11.86B (implies a LFCF/EV ratio at 17.88%). Based on projected earnings growth, the company appears to be undervalued (PEG ratio at 0.77). What's more, short sellers don't seem to think the stock is a falling knife (short float of the stock is only at 1.160%).

2. Applied Materials Inc. (AMAT): Provides manufacturing equipment, services, and software to the semiconductor, flat panel display, solar photovoltaic (PV), and related industries worldwide. Market cap at $14.58B. Levered free cash flow at $1.86B vs. enterprise value at $11.10B (implies a LFCF/EV ratio at 16.76%).

3. Nokia Corporation (NOK): Provides Internet and digital mapping and navigation services worldwide. Market cap at $25.32B. Levered free cash flow at $2.93B vs. enterprise value at $17.78B (implies a LFCF/EV ratio at 16.48%).

4. Dell Inc. (DELL): Provides integrated technology solutions in the information technology industry worldwide. Market cap at $26.82B. Levered free cash flow at $2.98B vs. enterprise value at $19.74B (implies a LFCF/EV ratio at 15.1%).

5. CA Technologies (CA): Designs, develops, markets, delivers, licenses, and supports information technology management software products that operate on a range of hardware platforms and operating systems. Market cap at $10.48B. Levered free cash flow at $1.30B vs. enterprise value at $9.04B (implies a LFCF/EV ratio at 14.38%).

6. LM Ericsson Telephone Co. (ERIC): Provides communications equipment, professional services, and multimedia solutions to mobile and fixed networks operators worldwide. Market cap at $36.56B. Levered free cash flow at $3.84B vs. enterprise value at $28.28B (implies a LFCF/EV ratio at 13.58%). Short sellers have been avoiding the stock (short float is at a below-average 0.30%). This may suggest that sophisticated investors, like short sellers, don't see any obvious weaknesses in the company.

7. ASML Holding NV (ASML): Engages in designing, manufacturing, marketing, and servicing semiconductor processing equipment used in the fabrication of integrated circuits. Market cap at $14.93B. Levered free cash flow at $1.63B vs. enterprise value at $12.06B (implies a LFCF/EV ratio at 13.52%).

8. Activision Blizzard, Inc. (ATVI): Activision Blizzard, Inc. publishes online, personal computer (PC), console, handheld, and mobile games of interactive entertainment worldwide. Market cap at $13.22B. Levered free cash flow at $1.35B vs. enterprise value at $10.60B (implies a LFCF/EV ratio at 12.74%).

9. Symantec Corporation (SYMC): Provides security, storage, and systems management solutions to secure and manage information. Market cap at $12.7B. Levered free cash flow at $1.45B vs. enterprise value at $12.56B (implies a LFCF/EV ratio at 11.54%).

10. Cisco Systems, Inc. (CSCO): Designs, manufactures, and sells Internet protocol (IP)-based networking and other products related to the communications and information technology industry worldwide. Market cap at $87.01B. Levered free cash flow at $6.03B vs. enterprise value at $58.08B (implies a LFCF/EV ratio at 10.38%).

11. Telefonos de Mexico, S.A.B. de C.V. (TMX): Provides telecommunications services primarily in Mexico. Market cap at $15.45B. Levered free cash flow at $2.09B vs. enterprise value at $20.66B (implies a LFCF/EV ratio at 10.12%). Momentum traders might be interested to know that the company is exhibiting strong upward momentum (currently trading above the 20-day, 50-day and 200-day moving averages).

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

Source: 11 Mega Cap Tech Stocks Undervalued By Cash Flow