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In the never-ending search for potentially undervalued stocks, one indicator is the ratio levered free cash flow/enterprise value. Companies with higher ratios appear more undervalued relative to their levered free cash flows.

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 ran a screen on semiconductor stocks of the tech sector for those with relatively high ratios of levered free cash flow/enterprise value, possibly indicating that they are undervalued.

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 companies? Use this list as a starting point for your own analysis.

List sorted by levered free cash flow/enterprise value.

1. Tessera Technologies Inc. (TSRA): Develops and licenses miniaturization technologies for chip-scale, multichip, and wafer-level packaging, which enables companies to produce chips for digital audio players, digital cameras, personal computers, personal digital assistants, video game consoles, and mobile phones. Market cap of $863.13M. Levered free cash flow/enterprise value at 22.71% (levered free cash flow at $74.38M and enterprise value at $327.58M). The stock has lost 24.38% over the last year.

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 of $13.98B. Levered free cash flow/enterprise value at 16.51% (levered free cash flow at $1.60B and enterprise value at $9.69B). The stock has lost 21.88% over the last year.

3. Teradyne Inc. (TER): Provides automatic test equipment products and services worldwide. Market cap of $2.51B. Levered free cash flow/enterprise value at 15.95% (levered free cash flow at $236.11M and enterprise value at $1.48B). The stock is a short squeeze candidate, with a short float at 11.45% (equivalent to 5.16 days of average volume). The stock has lost 2.92% over the last year.

4. Brooks Automation Inc. (BRKS): Provides automation, vacuum, and instrumentation solutions primarily to the semiconductor manufacturing industry worldwide. Market cap of $680.39M. Levered free cash flow/enterprise value at 14.62% (levered free cash flow at $78.94M and enterprise value at $539.78M). The stock has gained 15.26% over the last year.

5. LSI Corporation (LSI): Designs, develops, and markets storage and networking semiconductors and storage systems worldwide. Market cap of $3.35B. Levered free cash flow/enterprise value at 13.82% (levered free cash flow at $341.27M and enterprise value at $2.47B). The stock has lost 0.67% over the last year.

6. NVIDIA Corporation (NVDA): Provides visual computing, high performance computing, and mobile computing solutions that generate interactive graphics on various devices ranging from tablets and smart phones to notebooks and workstations. Market cap of $8.46B. Levered free cash flow/enterprise value at 13.28% (levered free cash flow at $762.01M and enterprise value at $5.74B). The stock has performed poorly over the last month, losing 11.32%.

7. Rambus Inc. (RMBS): Engages in the creation, design, development, and licensing of patented innovations, technologies, and architectures to digital electronics products and systems. Market cap of $830.20M. Levered free cash flow/enterprise value at 11.63% (levered free cash flow at $77.65M and enterprise value at $667.81M). The stock has lost 63.13% over the last year.

8. Lam Research Corporation (LRCX): Engages in designing, manufacturing, marketing, and servicing semiconductor processing equipment used in the fabrication of integrated circuits. Market cap of $4.43B. Levered free cash flow/enterprise value at 11.62% (levered free cash flow at $360.25M and enterprise value at $3.10B). The stock has lost 28.51% over the last year.

9. PMC-Sierra Inc. (PMCS): Engages in the design, development, marketing, and support of semiconductor solutions for the enterprise infrastructure and communications infrastructure markets. Market cap of $1.27B. Levered free cash flow/enterprise value at 10.97% (levered free cash flow at $119.55M and enterprise value at $1.09B). The stock has lost 35.86% over the last year.

10. QLogic Corp. (QLGC): Engages in the design and supply of storage networking, high performance computing networking, and converged networking infrastructure solutions. Market cap of $1.51B. Levered free cash flow/enterprise value at 10.87% (levered free cash flow at $121.70M and enterprise value at $1.12B). The stock has lost 11.87% over the last year.

11. Synopsys Inc. (SNPS): Provides technology solutions used to develop electronics and electronic systems worldwide. Market cap of $3.92B. Levered free cash flow/enterprise value at 10.85% (levered free cash flow at $316.68M and enterprise value at $2.92B). The stock has gained 1.08% over the last year.

12. KLA-Tencor Corporation (KLAC): Engages in the design, manufacture, and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Market cap of $8.04B. Levered free cash flow/enterprise value at 10.56% (levered free cash flow at $706.63M and enterprise value at $6.69B). The stock has gained 28.43% over the last year.

13. IXYS Corp. (IXYS): Engages in the development, manufacture, and marketing of power semiconductors, advanced mixed signal integrated circuits (ICS), application specific integrated circuits (ASICs), and systems and radio frequency semiconductors. Market cap of $337.68M. Levered free cash flow/enterprise value at 10.48% (levered free cash flow at $29.45M and enterprise value at $281.09M). The stock has lost 6.8% over the last year.

14. Xilinx Inc. (XLNX): Designs, develops, and markets programmable platforms in North America, the Asia Pacific, Europe, and Japan. Market cap of $8.41B. Levered free cash flow/enterprise value at 10.28% (levered free cash flow at $771.69M and enterprise value at $7.51B). The stock has gained 13.13% over the last year.

15. Microsemi Corp. (MSCC): Engages in the design, manufacture, and marketing of analog and mixed-signal integrated circuits (IC) and semiconductors primarily in the United States, as well as in Europe and Asia. Market cap of $1.46B. Levered free cash flow/enterprise value at 10.10% (levered free cash flow at $156.50M and enterprise value at $1.55B). The stock has lost 26.86% over the last year.

16. Entegris, Inc. (ENTG): Develops, manufactures, and supplies products and materials used in processing and manufacturing in the semiconductor and other high-technology industries worldwide. Market cap of $1.18B. Levered free cash flow/enterprise value at 10.0% (levered free cash flow at $95.06M and enterprise value at $950.41M). The stock has gained 16.87% over the last year.

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

Source: 16 Semiconductor Stocks Undervalued By Levered Free Cash Flow