Do you consider yourself a contrarian investor? If so, we have just the list for you.
We started by screening the semiconductors industry for stocks with bearish sentiment, with float shorts above 10%.
We then screened for stocks that appear undervalued relative to their cash flows, indicated by high ratios of levered free cash flow/enterprise value.
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. When companies have ratios of levered free cash flow/enterprise value in excess of 10%, it may indicate that the company as a whole is being undervalued.
For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.
Tool provided by Kapitall (kapitall.com).
Do you think these stocks are suffering from excessive pessimism? Use this list as a starting point for your own analysis.
List sorted by LFCF/EV.
1. Entropic Communications, Inc. (ENTR): Designs, develops, and markets systems solutions to enable connected home entertainment. Market cap at $514.74M, most recent closing price at $5.85. Float short at 13.67%. Levered free cash flow at $44.52M vs. enterprise value at $290.72M (implies a LFCF/EV ratio at 15.31%).
2. Lam Research Corporation (LRCX): Engages in designing, manufacturing, marketing, and servicing semiconductor processing equipment used in the fabrication of integrated circuits. Market cap at $4.11B, most recent closing price at $34.18. Float short at 12.17%. Levered free cash flow at $362.60M vs. enterprise value at $2.53B (implies a LFCF/EV ratio at 14.33%).
3. QLogic Corp. (QLGC): Engages in the design and supply of storage networking, high performance computing networking, and converged networking infrastructure solutions. Market cap at $1.23B, most recent closing price at $12.58. Float short at 10.02%. Levered free cash flow at $97.03M vs. enterprise value at $739.61M (implies a LFCF/EV ratio at 13.12%).
4. Veeco Instruments Inc. (VECO): Designs, manufactures, and markets equipment to make high brightness light emitting diodes (HB LEDs), solar panels, hard-disk drives, and other devices. Market cap at $1.28B, most recent closing price at $32.84. Float short at 24.65%. Levered free cash flow at $107.70M vs. enterprise value at $848.00M (implies a LFCF/EV ratio at 12.7%).
5. Advanced Micro Devices, Inc. (AMD): Operates as a semiconductor company in the United States, Japan, China, and Europe. Market cap at $3.39B, most recent closing price at $4.83. Float short at 12.19%. Levered free cash flow at $450.25M vs. enterprise value at $3.97B (implies a LFCF/EV ratio at 11.34%).
*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.