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Shiraz Lakhi
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Full Time Investor, Writer & Blogger. Founder: TradePilot.com
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  • Undervalued Tech Stock Kulicke & Soffa Industries Boasts 13.9% Free Cash Flow Yield & Ultra-Low PEG Ratio
    By Shiraz Lakhi - Many investors who follow my articles and trade ideas here on SA will know I look primarily for strong free-cash-flow-yield metrics, as a basic starting point for potential plays - preferably within a 'sector' which has become technically oversold.

    One such company which appears on my radar today, is Kulicke & Soffa Industries (NASDAQ:KLIC). This semiconductor equipment and materials company currently generates leveraged-free-cash-flow of $89.43 million on a trailing 12 month basis. The last trading session valued the business (Enterprise Value) at $641.44 million, hence returning a significant free-cash-flow-yield (FCF/EV) of 13.9%.

    KLIC Stock Chart & Trend Signal Indicator

    Additional metrics in favor of KLIC include: a low PEG ratio of 0.39, a quick-ratio of 3.24 (strongly bullish), and a current-ratio of 3.82 (strongly bullish). KLIC currently trades at $11.41 per share, around 116% above its 52 week low.

    With fundamentals in favor of KLIC, I look to time my entry into the stock. Here, a simple rule is adopted - to trade when the sector for the specific stock (in this case, the technology sector (NYSEARCA:XLK) becomes oversold, and exhibits multiple technical buy-long signals.

    A simple sector based technical analysis indicator, such as the Technology Sector Trend-Indicator, freely available at tradepilot, is applied - where for example, if I am looking at selective stocks within this sector, I wait for the Trend-Indicator to become oversold, and to signal a fresh reversal/new green-bar long signal.

    The timing method effectively reconciles 'both' fundamentals and technical analysis into a disciplined stock selection and entry process - knowing 'which' stocks to focus on, and 'when' to buy them.

    By Shiraz Lakhi - Indenpendent Investor/Entrepreneur

    Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Data & Performance Analytics Sourced From TradePilot.com.
     
    Jul 05 1:07 PM | Link | Comment!
  • Undervalued Technology Stock Vishay Intertechnology (VSH) Boasts 18.8% Free Cash Flow Yield
    By Shiraz Lakhi - Many investors who follow my articles and trade ideas here on SA will know I look primarily for strong free-cash-flow-yield metrics, as a basic starting point for potential plays - preferably within a 'sector' which has become technically oversold.

    One such company which appears on my radar today, is Vishay Intertechnology Inc. (NYSE:VSH). This broad line semiconductor  company currently generates leveraged-free-cash-flow of $381.36 million on a trailing 12 month basis. The last trading session valued the business (Enterprise Value) at $2.02 Billion, hence returning a significant free-cash-flow-yield (FCF/EV) of 18.8%.

    VSH Stock Chart & Trend Signal Indicator

    Additional metrics in favor of VSH include: a low PEG ratio of 0.62 and consensus analyst mean target price of $20.50 (significantly above the current price). VSH currently trades at $15.70 per share, 24% below analyst estimates and around 129% above its 52 week low.

    Note the emphasis on the free-cash-flow-yield. This simple to calculate metric measures the Free-Cash-Flow (or FCF) generated by a business, divided by the Enterprise-Value (or EV) of the company. The FCF is a superior, more accurate reflection of a company's ability to generate profits than the basic, out-dated 'earnings' or 'EBITDA' figure, which is often prone to tactical/questionable accounting...

    Similarly, the EV is a superior, more authentic reflection of the true worth of a company, than the commonly used 'market-cap' figure, which most retail investors take at face value. The EV, in simple terms, takes into account the company's debts and cash holdings, effectively 'revaluing' the business based on what a potential acquirer would theoretically pay, in other words, the true value of a business.

    Hence, by dividing FCF by EV, we arrive at the free-cash-flow-yield. It is the percentage of true net income a company generates relative to its true overall value. The higher the yield, the more potentially undervalued the stock.

    Moreover, the yield provides an excellent basis for comparison of competing stocks within the same industry/sector, and forms a solid basis (starting point) for further analysis into a specific company...

    For instance, a stock offering a high (minimum 10%) free-cash-flow-yield, in addition to positive metrics, such as a low price-to-earnings-growth (or PEG) ratio, bullish analyst estimates, increased insider and institutional (smart money) buying, management competence (entrepreneurialism, innovation and drive), provision of a product (or service) within a growth market, all provide weight to strong upside potential.

    With fundamentals in favor of VSH, I look to 'time' my entry into the stock. Here, a simple rule is adopted - to trade when the 'sector' for the specific stock (in this case, the technology sector (NYSEARCA:XLK) becomes oversold, and exhibits multiple technical buy-long signals...

    A simple sector based technical analysis indicator, such as the 'Technology Sector Trend-Indicator', freely available at tradepilot, is applied - where for example, if I am looking at selective stocks within this sector, I wait for the Trend-Indicator to become oversold, and to signal a fresh reversal/new green-bar 'long' signal.

    The timing method effectively reconciles 'both' fundamentals and technical analysis into a disciplined stock selection and entry process - knowing 'which' stocks to focus on, and 'when' to buy them.

    By Shiraz Lakhi - Independent Investor/Entrepreneur

    Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Data & Performance Analytics Sourced From TradePilot.com.
     
    Jul 05 12:56 PM | Link | Comment!
  • Dynamics Research Corp. (DRCO) Deeply Undervalued By Free-Cash-Flow-Yield, A Low PEG Ratio, And Analyst Estimates...
    By Shiraz Lakhi - Many investors who follow my articles & alerts here on Seeking Alpha, will know I look primarily for strong Free-Cash-Flow-Yield metrics, as a starting point for further analysis, on a potential stock trade, within a 'sector' which has become 'technically oversold'.

    By focusing on a cyclically oversold sector (continually tracking technology, consumer goods, services, and basic materials sectors) based on simple technical trend indicators, then drilling down to the specific stock(s) which represent the strongest fundamentals based on the Free-Cash-Flow-Yield 'starting point', investors can establish a solid basis for strong potential upside in the selected stock, which combines both technicals and fundamentals.

    One such company which appears on my radar is Dynamics Research Corporation (NASDAQ:DRCO). This 'business software & services' company currently generates free-cash-flow of $20.63 million on a trailing twelve month basis. Last nights close valued the business (Enterprise Value) at $133.81 million, hence returning a robust Free-Cash-Flow-Yield (FCF/EV) of 15.4%.

    DRCO Stock Chart Including Trend Indicator

    Additional metrics in favor of DRCO include: a low PEG ratio of 0.93, and consensus analyst mean target price of $19.83 (significantly above the current price). DRCO currently trades at $13.11 per share, around 34% below analyst estimates, and around 51% above its 52 week low.

    Note the emphasis on the Free-Cash-Flow-Yield. This simple to calculate metric measures the Free-Cash-Flow (or 'FCF') generated by a business, divided by the Enterprise-Value (or 'EV') of the company. The FCF is a superior, more accurate reflection of a companys ability to generate profits than the basic, out-dated earnings or EBITDA figure, which is often prone to tactical/questionable accounting. Similarly, the EV is a superior, more authentic reflection of the worth of a company, than the commonly used 'market-cap' figure which most investors take at face value. The EV, in simple terms, takes into account the company's debts and cash holdings, effectively 'revaluing' the business based on what a potential acquirer would theoretically pay, in other words, the 'true value' of a business.

    Hence, by dividing FCF by EV, we arrive at the Free-Cash-Flow-Yield. It is the percentage of 'true net income' a company generates relative to its 'true overall value'.

    Investors can quickly measure and identify potential undervalued plays as an excellent starting point for further analysis/diligence (looking at additional fundamentals such as PEG ratio, analyst estimates, long and short term debt, management competence, entrepreneurialism, innovation in product/service, whether the business operates within a growth or shrinking market and so forth), when selecting and short-listing potential plays.

    It is also valuable to seek out fundamentally superior stocks, at a time when the overall 'sector', or the general market as a whole (S&P index) becomes cyclically undervalued. There are numerous technical trend indicators which provides a basis to determining the overall market sentiment in any specific sector (such as technology), or the market (S&P), using readily available, free-to-use trend and oversold/overbought indicators. The key is to select an oversold sector, then drill down to the most fundamentally robust stock(s) within that sector.

    Wishing you every success in your investments, and good spirit...
    Shiraz Lakhi - Independent Investor/Publisher

    Enterprise Value/Free-Cash-Flow Data Sourced From Yahoo Finance. Stock Data & Performance Analytics Sourced From TradePilot.com.
     
    Jun 30 6:09 AM | Link | Comment!
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