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 (NASDAQ: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 (NASDAQ: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 (NASDAQ: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 (NASDAQ: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 (NYSE: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 (NYSE: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 (NASDAQ: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