8 Rallying Stocks Undervalued To EPS Trends And Levered Cash Flow

Sep. 12, 2012 12:31 AM ETAIN, PTVCB, GLP, DINO, IL, LOGI, SAAS, TV, UFCS
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Looking for stocks with strong momentum with more potential upside to price in? We created a list with that sentiment in mind.

The 8 stocks listed below have met all of the following criteria:

- Rallying above their 20, 50, and 200 day moving averages.

The market has sent many stock prices soaring in the past couple months, so we wanted to make sure the stocks in our screen are, at the very least, taking part in this movement. Investors seem to think these names are worthy to ride the trend.

- Undervalued by EPS Trends:

Despite the rally, we wanted names that show potential to rise even higher and considered undervalued at current levels. We screened for stocks that may be undervalued, by comparing price trends to changes in EPS estimates over the last month.

Based on the assumption that P/E is equal to a constant k, increases in EPS should be matched by increases in price. When they don't match up, a mispricing may have occurred.

- Undervalued by Levered Free Cash Flow / Enterprise Value Ratio

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.

- Market cap above $300 million.

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Tool provided by Kapitall (www.kapitall.com).

Our final list is below. Do you

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