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Value investors look for stocks that they believe are trading at significant discounts to their fair value, with the belief that they’ll soon rise to that fair value generating a profit. The trick is finding stocks that are indeed undervalued.

One ratio that can be helpful in comparing company valuations is levered free cash flow/enterprise value. The higher the ratio, the more likely the company is 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 ran a screen on the 200 largest stocks by market cap for those with the highest ratios of levered free cash flow/enterprise value, possibly indicating that they are undervalued to their fair value.

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 for more detail)



Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.

List sorted by levered free cash flow/enterprise value.

1. Time Warner Inc. (NYSE:TWX): Operates as a media and entertainment company in the United States and internationally. Market cap of $34.01B. Levered free cash flow/enterprise value at 20.99% (levered free cash flow at $10.51B and enterprise value at $50.08B). The stock has gained 14.41% over the last year.

2. Statoil ASA (NYSE:STO): Engages in the exploration, production, transportation, refining, and marketing of petroleum and petroleum-derived products. Market cap of $80.51B. Levered free cash flow/enterprise value at 20.22% (levered free cash flow at $17.49B and enterprise value at $86.48B). The stock has gained 27.72% over the last year.

3. General Motors Company (NYSE:GM): Operates as a global automaker. Market cap of $35.44B. Levered free cash flow/enterprise value at 19.09% (levered free cash flow at $3.10B and enterprise value at $16.24B).

4. Unitedhealth Group, Inc. (NYSE:UNH): Provides healthcare services in the United States. Market cap of $47.88B. Levered free cash flow/enterprise value at 16.87% (levered free cash flow at $7.62B and enterprise value at $45.17B). Might be undervalued at current levels, with a PEG ratio at 0.88, and P/FCF ratio at 6.77. The stock has gained 28.76% over the last year.

5. Dell Inc. (NASDAQ:DELL): Provides integrated technology solutions in the information technology (NYSE:IT) industry worldwide. Market cap of $27.60B. Levered free cash flow/enterprise value at 14.10% (levered free cash flow at $2.98B and enterprise value at $21.13B). The stock has gained 13.33% over the last year.

6. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX): Engages in the exploration, mining, and production of mineral resources. Market cap of $36.23B. Levered free cash flow/enterprise value at 13.46% (levered free cash flow at $5.37B and enterprise value at $39.91B). Might be undervalued at current levels, with a PEG ratio at 0.76, and P/FCF ratio at 9.16. The stock has lost 19.44% over the last year.

7. BlackRock, Inc. (NYSE:BLK): Provides its services to institutional, intermediary, and individual investors. Market cap of $28.86B. Levered free cash flow/enterprise value at 13.24% (levered free cash flow at $4.35B and enterprise value at $32.85B). The stock has had a couple of great days, gaining 5.29% over the last week.

8. General Electric Co. (NYSE:GE): Operates as a technology, service, and finance company worldwide. Market cap of $168.39B. Levered free cash flow/enterprise value at 13.09% (levered free cash flow at $71.45B and enterprise value at $545.80B). The stock has gained 4.25% over the last year.

9. AstraZeneca PLC (NYSE:AZN): Develops, and commercializes prescription medicines for cardiovascular, gastrointestinal, infection, neuroscience, oncology, and respiratory and inflammation diseases worldwide. Market cap of $59.45B. Levered free cash flow/enterprise value at 12.41% (levered free cash flow at $7.44B and enterprise value at $59.96B). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 5.97%, current ratio at 1.53, and quick ratio at 1.4. The stock has lost 0.81% over the last year.

10. Ford Motor Co. (NYSE:F): Develops, manufactures, distributes, and services vehicles and parts worldwide. Market cap of $40.13B. Levered free cash flow/enterprise value at 12.23% (levered free cash flow at $14.17B and enterprise value at $115.86B). This is a risky stock that is significantly more volatile than the overall market (beta = 2.36). The stock has performed poorly over the last month, losing 10.36%.

11. Comcast Corporation (NASDAQ:CMCSA): Provides entertainment, information, and communications products and services in the United States and internationally. Market cap of $58.61B. Levered free cash flow/enterprise value at 11.77% (levered free cash flow at $11.76B and enterprise value at $99.93B). The stock has gained 7.5% over the last year.

12. NTT DOCOMO, Inc. (NYSE:DCM): Provides wireless telecommunications services, packet communications services, and satellite mobile communications services in Japan. Market cap of $78.13B. Levered free cash flow/enterprise value at 11.15% (levered free cash flow at $7.26B and enterprise value at $65.14B). The stock has gained 10.09% over the last year.

13. Eli Lilly & Co. (NYSE:LLY): Develops, manufactures, and sells pharmaceutical products worldwide. Market cap of $42.64B. Levered free cash flow/enterprise value at 11.01% (levered free cash flow at $4.65B and enterprise value at $42.22B). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 5.32%, current ratio at 1.77, and quick ratio at 1.47. The stock has gained 13.01% over the last year.

14. France Telecom (FTE): Provides fixed telephony and mobile telecommunications, data transmission, Internet and multimedia, and other value-added services to consumers, businesses, and telecommunications operators. Market cap of $44.61B. Levered free cash flow/enterprise value at 10.66% (levered free cash flow at $9.11B and enterprise value at $85.48B). The stock has lost 17.17% over the last year.

15. Pfizer Inc. (NYSE:PFE): A biopharmaceutical company, offers prescription medicines for humans and animals worldwide. Market cap of $150.43B. Levered free cash flow/enterprise value at 10.59% (levered free cash flow at $17.46B and enterprise value at $164.89B). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 4.09%, current ratio at 2.25, and quick ratio at 1.95. The stock has gained 23.78% over the last year.

16. Canon Inc. (NYSE:CAJ): Manufactures and sells network digital multifunction devices (MFDs), plain paper copying machines, laser printers, inkjet printers, cameras, and lithography equipments primarily under Canon brand in the Americas, Europe, Asia and Oceania. Market cap of $58.03B. Levered free cash flow/enterprise value at 10.53% (levered free cash flow at $4.41B and enterprise value at $41.90B). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 3.56%, current ratio at 2.21, and quick ratio at 1.67. The stock has lost 8.46% over the last year.

17. LM Ericsson Telephone Co. (NASDAQ:ERIC): Provides communications equipment, professional services, and multimedia solutions to mobile and fixed networks operators worldwide. Market cap of $32.73B. Levered free cash flow/enterprise value at 10.32% (levered free cash flow at $2.67B and enterprise value at $25.88B). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 3.69%, current ratio at 1.93, and quick ratio at 1.56. The stock has gained 0.7% over the last year.

18. Bristol-Myers Squibb Company (NYSE:BMY): Develops, and delivers innovative medicines that help patients prevail over serious diseases. Market cap of $52.26B. Levered free cash flow/enterprise value at 10.12% (levered free cash flow at $5.09B and enterprise value at $50.31B). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 4.28%, current ratio at 2.03, and quick ratio at 1.85. The stock has gained 24.46% over the last year.

19. Nippon Telegraph & Telephone Corp. (NYSE:NTT): Provides telecommunications services to residential and business customers in Japan. Market cap of $74.14B. Levered free cash flow/enterprise value at 10.07% (levered free cash flow at $10.31B and enterprise value at $102.42B). The stock has gained 12.63% over the last year.

Data from 11/15. Levered free cash flow and enterprise value data sourced from Yahoo! Finance, all other data sourced from Finviz.

Source: 19 Mega-Cap Stocks Undervalued By Levered Free Cash Flow