Today's screen looks for undervalued stocks under 10 dollars by looking at levered free cash flow.
Stocks rose this morning, effectively erasing most of the loses they sustained this winter. Housing prices are growing, but more slowly than they usually do – which is a good indicator of stability, and consumer confidence grew. All this news came despite disappointing jobs numbers.
According to some analysts, the stock market's performance in February suggests that January's loses were mostly attributable to the weather's impact on shopping and hiring – and not a sign that the fragile economy is losing momentum.
This might mean that the world is moving into a state of expansion, after a very long recovery period.
There's no doubting that the stock market, and by extension the wealthy, did very well in 2013. More stable progress will involve more gains across the rest of the spectrum. But this will probably only occur if companies start spending more.
Now corporate reserves are at their all time high, but they just haven't been spending as much. However, the slew of acquisitions this year, most recently Facebook's (FB) purchase of WhatsApp – suggests that's starting to change.
The companies that will benefit the most from a period of expansion in 2014 will be the ones with the most cash on hand to buy things. So we decided to build a list of stocks that appear to be performing well, that also had disproportionately large reserves.
To do that we started with a list of companies that are trading above their 200-day simple moving average (SMA 200). Then we screened further for a favorable ratio between levered-free-cash-flow and enterprise value (LFCF/EV).
Levered-free cash flow is the amount of cash a company has left over after paying off its expenses and debts. Enterprise value is an alternative to the "market cap" for measuring a company's size. When the ratio between the two is high, it means that the company has more cash on hand than the average company of its size.
Click on the interactive chart to view data over time.
Do you see investment opportunities among the five stocks that made it through our screen? Use the list below as a starting point for your own analysis.
1.Alexza Pharmaceuticals Inc. (ALXA, Earnings, Analysts, Financials):Focuses on the research, development, and commercialization of novel proprietary products for the acute treatment of central nervous system conditions. Market cap at $94.12M, most recent closing price at $5.46.
Levered free cash flow at $11.62M vs. enterprise value at $65.39M (implies a LFCF/EV ratio at 17.77%).
SMA 200: 21%
2.Brocade Communications Systems, Inc. (BRCD, Earnings, Analysts, Financials):Supplies networking equipment comprising end-to-end Internet protocol based Ethernet and storage area networking solutions. Market cap at $4.26B, most recent closing price at $9.59.
Levered free cash flow at $661.14M vs. enterprise value at $3.80B (implies a LFCF/EV ratio at 17.4%).
SMA 200: 24.79%
3.Emulex Corporation (ELX, Earnings, Analysts, Financials):Provides network convergence solutions that connect servers, storage, and networks within the data center. Market cap at $642.92M, most recent closing price at $7.40.
Levered free cash flow at $56.15M vs. enterprise value at $541.76M (implies a LFCF/EV ratio at 10.36%).
SMA 200: 1.25%
4.Global Cash Access Holdings, Inc. (GCA, Earnings, Analysts, Financials):Provides cash access products and related services to the gaming industry in the United States and internationally. Market cap at $551.07M, most recent closing price at $8.41.
Levered free cash flow at $119.73M vs. enterprise value at $503.62M (implies a LFCF/EV ratio at 23.77%).
SMA 200: 5.79%
Levered free cash flow at $204.09M vs. enterprise value at $1.95B (implies a LFCF/EV ratio at 10.47%).
(List compiled by James Dennin. Analyst ratings sourced from Zacks Investment Research.)
Analyze These Ideas: Getting Started
- Read descriptions for all companies mentioned
- Access a performance overview for all stocks in the list
- Compare analyst ratings for the companies mentioned
- Compare analyst ratings to annual returns for stocks mentioned
- Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
Dig Deeper: Access Company Snapshots, Charts, Filings
- Alexza Pharmaceuticals Inc.(ALXA, Chart, Download SEC Filings)
- Brocade Communications Systems, Inc.(BRCD, Chart, Download SEC Filings)
- Emulex Corporation(ELX, Chart, Download SEC Filings)
- Global Cash Access Holdings, Inc.(GCA, Chart, Download SEC Filings)
- Key Energy Services Inc.(KEG, Chart, Download SEC Filings)
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