10 S&P 500 Stocks Undervalued By Levered Free Cash Flows

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 |  Includes: A, AMAT, APOL, CI, JNS, LUV, MRO, TER, TWX, UNM
by: Kapitall

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.

Using levered free cash flow/enterprise value, we screened for potentially undervalued stocks among those of the S&P 500.

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 these stocks should be trading higher? Use this list as a starting-off point for your own analysis.

List sorted by levered free cash flow/enterprise value.

1. Southwest Airlines Co. (NYSE:LUV): Operates as a passenger airline that provides scheduled air transportation in the United States. Market cap of $5.91B. Levered free cash flow/enterprise value at 25.47% (levered free cash flow at $1.61B and enterprise value at $6.32B). The stock is currently stuck in a downtrend, trading 12.24% below its SMA20, 14.77% below its SMA50, and 34.05% below its SMA200. It's been a rough couple of days for the stock, losing 15.61% over the last week.

2. CIGNA Corporation (NYSE:CI):
Operates as a health service organization. Market cap of $10.80B. Levered free cash flow/enterprise value at 21.10% (levered free cash flow at $2.65B and enterprise value at $12.56B). The stock is currently stuck in a downtrend, trading 9.64% below its SMA20, 11.39% below its SMA50, and 10.79% below its SMA200. It's been a rough couple of days for the stock, losing 7.62% over the last week.

3. Time Warner Inc. (NYSE:TWX):
Operates as a media and entertainment company in the United States and internationally. Market cap of $30.26B. Levered free cash flow/enterprise value at 20.74% (levered free cash flow at $9.61B and enterprise value at $48.16B). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 3.25%, current ratio at 1.65, and quick ratio at 1.4. It's been a rough couple of days for the stock, losing 5.82% over the last week.

4. Marathon Oil Corporation (NYSE:MRO):
Operates as an international energy company with operations in the United States, Canada, Africa, the Middle East, and Europe. Market cap of $14.47B. Levered free cash flow/enterprise value at 21.23% (levered free cash flow at $3.29B and enterprise value at $15.50B). The stock is currently stuck in a downtrend, trading 16.03% below its SMA20, 22.28% below its SMA50, and 28.78% below its SMA200. It's been a rough couple of days for the stock, losing 12.74% over the last week.

5. Agilent Technologies Inc. (NYSE: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 of $10.21B. Levered free cash flow/enterprise value at 20.77% (levered free cash flow at $2.06B and enterprise value at $9.92B). The stock is currently stuck in a downtrend, trading 13.05% below its SMA20, 17.67% below its SMA50, and 32.11% below its SMA200. It's been a rough couple of days for the stock, losing 9.23% over the last week.

6. Teradyne Inc. (NYSE:TER):
Provides automatic test equipment products and services worldwide. Market cap of $1.96B. Levered free cash flow/enterprise value at 21.07% (levered free cash flow at $273.91M and enterprise value at $1.3B). The stock is currently stuck in a downtrend, trading 10.39% below its SMA20, 12.76% below its SMA50, and 29.61% below its SMA200. It's been a rough couple of days for the stock, losing 7.37% over the last week.

7. Apollo Group Inc. (NASDAQ:APOL):
Provides educational programs and services at the undergraduate, master's, and doctoral levels. Market cap of $5.29B. Levered free cash flow/enterprise value at 19.70% (levered free cash flow at $833.23M and enterprise value at $4.23B). The stock is currently stuck in a downtrend, trading 13% below its SMA20, 16.67% below its SMA50, and 11.43% below its SMA200. It's been a rough couple of days for the stock, losing 9.01% over the last week.

8. Janus Capital Group, Inc. (NYSE:JNS):
A publicly owned asset management holding company. Market cap of $1.05B. Levered free cash flow/enterprise value at 19.65% (levered free cash flow at $222.02M and enterprise value at $1.13B). This is a risky stock that is significantly more volatile than the overall market (beta = 2.66). The stock is currently stuck in a downtrend, trading 13.22% below its SMA20, 19.29% below its SMA50, and 46.09% below its SMA200. It's been a rough couple of days for the stock, losing 11.2% over the last week.

9. Applied Materials Inc. (NASDAQ:AMAT):
Provides manufacturing equipment, services, and software to the semiconductor, flat panel display, solar photovoltaic (PV), and related industries worldwide. Market cap of $12.98B. Levered free cash flow/enterprise value at 18.9% (levered free cash flow at $1.86B and enterprise value at $9.84B). The stock is currently stuck in a downtrend, trading 9.41% below its SMA20, 13.05% below its SMA50, and 27.53% below its SMA200. It's been a rough couple of days for the stock, losing 5.11% over the last week.

10. Unum Group (NYSE:UNM):
Provides group and individual disability insurance products primarily in the United States and the United Kingdom. Market cap of $6.07B. Levered free cash flow/enterprise value at 18.03% (levered free cash flow at $1.45B and enterprise value at $8.04B). The stock is currently stuck in a downtrend, trading 8.86% below its SMA20, 11.88% below its SMA50, and 19.27% below its SMA200. It's been a rough couple of days for the stock, losing 6.93% over the last week.

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

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