Do you consider yourself a contrarian investor? If so, we have just the list for you.
We began by screening the basic materials sector 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.
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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. AK Steel Holding Corporation (AKS): Produces flat-rolled carbon, stainless, and electrical steels, and tubular products primarily in the United States and internationally. Market cap at $557.22M, most recent closing price at $5.04. Float short at 30.73%. Levered free cash flow at $289.94M vs. enterprise value at $1.79B (implies a LFCF/EV ratio at 16.2%).
2. Western Refining Inc. (WNR): Operates as an independent crude oil refiner and marketer of refined products in Texas, Arizona, New Mexico, Utah, Colorado, and the Mid-Atlantic region. Market cap at $2.11B, most recent closing price at $23.29. Float short at 25.62%. Levered free cash flow at $422.13M vs. enterprise value at $2.67B (implies a LFCF/EV ratio at 15.81%).
3. Alpha Natural Resources, Inc. (ANR): Engages in the production, processing, and sale of coal in the United States. Market cap at $1.58B, most recent closing price at $7.15. Float short at 10.34%. Levered free cash flow at $454.53M vs. enterprise value at $3.93B (implies a LFCF/EV ratio at 11.57%).
*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.