5 BRIC Stocks Undervalued By Levered Free Cash Flows

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 |  Includes: CEA, GOL, GSH, SOHU, TNE
by: Kapitall

Interested in the growth opportunities that emerging market stocks might offer? For ideas on how to get started, we ran a screen.

We screened US-traded stocks of companies based in the BRIC countries (Brazil, Russia, India, and China) for those with the highest ratios of levered free cash flow/enterprise value, possibly indicating that these stocks are undervalued by the market.

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

List sorted by LFCF/EV.

1. Tele Norte Leste Participacoes S.A. (NYSE:TNE): Provides telecommunication services primarily in Brazil. Market cap of $4.46B. Brazil. Levered free cash flow/enterprise value at 15.96% (levered free cash flow at $2.18B and enterprise value at $13.66B). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 5.36%, current ratio at 1.48, and quick ratio at 1.47. The stock has lost 40.04% over the last year.

2. Guangshen Railway Co. Ltd. (NYSE:GSH): Provides passenger and freight transportation services on the Shenzhen-Guangzhou-Pingshi railway in the People's Republic of China. Market cap of $2.57B. China. Levered free cash flow/enterprise value at 15.02% (levered free cash flow at $346.86M and enterprise value at $2.31B). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 3.83%, current ratio at 1.8, and quick ratio at 1.71. The stock has lost 7.98% over the last year.

3. GOL Linhas A (NYSE:GOL): Operates as a low-cost low-fare airline in Latin America. Market cap of $1.88B. Brazil. Levered free cash flow/enterprise value at 12.51% (levered free cash flow at $471.63M and enterprise value at $3.77B). This is a risky stock that is significantly more volatile than the overall market (beta = 2.01). The stock is a short squeeze candidate, with a short float at 5.64% (equivalent to 5.51 days of average volume). The stock has lost 55.18% over the last year.

4. China Eastern Airlines Corp. Ltd. (NYSE:CEA): Operates in civil aviation industry. Market cap of $4.16B. China. Levered free cash flow/enterprise value at 12.04% (levered free cash flow at $759.45M and enterprise value at $6.31B). This is a risky stock that is significantly more volatile than the overall market (beta = 2.21). The stock has lost 20.47% over the last year.

5. Sohu.com Inc. (NASDAQ:SOHU): Engages in the brand advertising, online gaming, sponsored search, and wireless businesses in China. Market cap of $2.30B. China. Levered free cash flow/enterprise value at 11.14% (levered free cash flow at $164.86M and enterprise value at $1.48B). The stock has had a good month, gaining 24.27%.

*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.