There are many factors one can look at to see if a stock is undervalued and/or poised to move higher. One is options activity as I described here. Another is insider activity as I described here. A third way is getting paid extra income through covered calls while we hold stocks we find value in, as I described here.
Finally, another valuation method, which Benjamin Graham popularized, involves buying companies trading at two-thirds or less of their net current asset value. This is simply calculated with the current assets of a firm and subtracting out all their liabilities. This is essentially the liquidation value of a firm and many research studies have shown that following this strategy produces market-beating results over the long-term.
However, now with the proliferation of vast screening tools and the market more aware of this, it's virtually impossible to find such cheap companies; however, here are some that come close:
1) Tessera Technologies (TSRA) develops, licenses, and delivers miniaturization technologies and products for electronic devices worldwide. The stock has no debt and has over $10.25/share in net cash. With a company that just closed at $13.57, that means the company's valuation is approximately 75% in net cash which is rare to find. Moreover, valuations are attractive as this company trades at 12.5x P/E, 1x P/B, and 1.2x enterprise value/EBITDA. Moreover, with the company generating approximately $100 million in free cash flow (FCF), that means when the cash is taken out, the company trades at just over 1x P/FCF. The chart looks ugly, but I think this stock is a long-term buy here at these cheap levels. Moreover, the stock has fantastic institutional ownership with 90.8% of shares held by institutions as of last quarter.
2) OmniVision Technologies (OVTI) engages in designing, developing, and marketing semiconductor image-sensor devices worldwide. This company has over $500 million in cash against only $50 million in debt, translating to approximately 50% of the company in net cash. With the company trading at just over a 5.5x P/E, .8x P/S, 1x P/B, and just over 3x enterprise value/FCF, the stock looks cheap. Moreover, the stock has very strong institutional ownership with 88.9% of shares held by institutions as of last quarter.
3) MIPS Technologies (MIPS) provides industry-standard processor architectures and cores for digital home, networking, and mobile applications primarily in the United States, Japan, the Pacific Rim, and Europe. The company has no debt and approximately $2.10/share in net cash, translating to just under 45% of the company as net cash. This stock is pricier at 15.5x P/E, 3.5x P/S, 2.7x P/B, and approximately 8x enterprise value/FCF . I'm not as bullish on this stock, but if it drops back to its 52-week low near $4 and closer to 5x enterprise value/FCF, I think this is a buy. Moreover, the stock has strong institutional ownership with 78.3% of shares held by institutions as of last quarter.
4) ANADIGICS (ANAD) provides semiconductor solutions to the broadband wireless and wireline communications markets. The company has no debt and trades at approximately 55% net cash. The valuations are compelling with the stock trading at .8x P/S, .4x enterprise value/sales, and .9x P/B. However, the company lost over $18M in net income this prior year and had negative returns on assets and equity. However, I think with such a solid balance sheet and the stock near its 52-week low, it is a nice speculative buy. Moreover, the stock has strong institutional ownership with 71.3% of shares held by institutions as of last quarter.
5) Forest Laboratories (FRX) develops, manufactures, and sells branded forms of ethical drug products. The company has no debt and over $8.5/share in net cash, translating to close to 30% of the company as net cash. This stock looks attractive at under 8x P/E, 4.2x enterprise value/EBITDA, and approximately 6x enterprise value/FCF. I think this stock is a solid buy here and has very strong institutional ownership with 98.7% of shares held by institutions as of last quarter.
6) Teradyne (TER), together with its subsidiaries, provides automatic test equipment products and services worldwide. The stock has just over $4/share in net cash with little debt, translating to the company being approximately 30% net cash. The stock looks cheap at just over 7x P/E, 3.3x enterprise value/EBITDA, and about 3x enterprise value/FCF. Moreover, it has a very high institutional ownership with 104.9% of shares held by institutions as of last quarter. Due to naked shorting, stocks can have more than 100% of their shares outstanding owned by institutions as is the case here with TER.
7) Veeco Instruments (VECO) designs, manufactures, and markets equipment to make high brightness light emitting diodes (HB LEDs), solar panels, hard-disk drives, and other devices. The company has virtually no debt and just over $14/share in net cash, translating to almost 60% of the company as net cash. With the big hit the stock took on Monday, it now trades at under 3x P/E, 1.5x enterprise value/EBITDA, and approximately 3x enterprise value/FCF. I think this is a solid buy and due to naked shorting again, has a very high institutional ownership with 120.6% of shares held by institutions as of last quarter.
Sources: Yahoo, SEC filings, company websites