f you're interested in finding potentially undervalued stocks, here are some ideas to get started.
We ran a screen on the clean energy industry (companies that use or produce sources of clean energy) for those with the highest ratios of levered free cash flow/enterprise value, potentially indicating that these stocks are 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.
Companies with high ratios of levered free cash flow/enterprise value may be undervalued by the market.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the 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 point for your own analysis.
List sorted by levered free cash flow/enterprise value.
1. Applied Materials Inc. (AMAT): Provides manufacturing equipment, services, and software to the semiconductor, flat panel display, solar photovoltaic, and related industries worldwide. Market cap of $14.81B. Levered free cash flow/enterprise value at 15.22% (levered free cash flow at $1.60B and enterprise value at $10.51B). Might be undervalued at current levels, with a PEG ratio at 0.85, and P/FCF ratio at 8.14. The stock has had a couple of great days, gaining 5.88% over the last week.
2. General Electric Company (GE): Operates as a technology, service, and finance company worldwide. Market cap of $199.11B. Levered free cash flow/enterprise value at 12.50% (levered free cash flow at $71.75B and enterprise value at $573.88B). The stock has had a couple of great days, gaining 5.3% over the last week.
3. Shaw Group Inc. (SHAW): Provides technology, engineering, procurement, construction, maintenance, fabrication, manufacturing, consulting, remediation, and facilities management services to multinational and national oil companies, industrial corporations, regulated utilities, independent and merchant power producers, and government agencies worldwide. Market cap of $1.80B. Levered free cash flow/enterprise value at 12.34% (levered free cash flow at $195.02M and enterprise value at $1.58B). The stock has had a good month, gaining 14.65%.
4. 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 $347.03M. Levered free cash flow/enterprise value at 10.14% (levered free cash flow at $29.45M and enterprise value at $290.45M). The stock has lost 4.79% over the last year.
*LFCF/EV 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.