Four undervalued stocks under 5 dollars with ratings of “strong buy”

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By James Dennin for Kapitall. 

A number of big mergers offset other market concerns on Monday, as stocks hovered at modest gains as of 3:30 PM New York Time. 

Zillow ( Z ) bought Trulia ( TRLA ) , in a bid to create the world's largest online real estate broker. In the retail sector, Dollar General ( DG ) agreed to buy Family Dollar ( FDO ) -helping 2014's total merger activity top $1 trillion

That's already more than all of 2013. 

If you think the stock market still has room to advance, we decided to run a screen on stocks that have the best chance of continuing their strong performance thus far. So we decided to look at analyst ratings. 

First we set our screen to only include stocks below $5 dollars -and then limited that screen to stocks with a rating of "strong buy." We used Reuter's method to compile the average scores, which uses a 5-point scale between "strong buy" (1) and "strong sell" (5) to assess an average recommendation. 

The lower the rating, the better. Stocks with an average rating below 2 are considered "strong buys." We then narrowed that list further to only include stocks that might be undervalued, using the levered-free-cash-flow to enterprise-value ratio . This means the stock has a lot of cash on hand relative to other companies of its size. 

This left us with only four companies. Do you think the analyst consensus is correct on these four stocks? Use the list below to begin your analysis, and let us know what you think in the comments. 

Click on the interactive chart to view data over time. 

1. PAR Technology Corp. ( PAR , Earnings , Analysts , Financials ): Provides professional services and enterprise business management technology to the hospitality industry worldwide. Market cap at $61.06M, most recent closing price at $3.94.  

Levered free cash flow at $5.42M vs. enterprise value at $51.80M (implies a LFCF/EV ratio at 10.46%).

Analyst recommendation: 1.0

2. RadiSys Corporation ( RSYS , Earnings , Analysts , Financials ): Develops, produces, and markets application-ready software and hardware platforms for Internet protocol ( IP )-based wireless, wireline, and video networks markets. Market cap at $117.55M, most recent closing price at $3.26.  

Levered free cash flow at $11.15M vs. enterprise value at $108.28M (implies a LFCF/EV ratio at 10.3%).  

Analyst recommendation: 1.5

3. TGC Industries Inc. ( TGE , Earnings , Analysts , Financials ): Provides geophysical services in the United States and Canada. Market cap at $93.54M, most recent closing price at $4.65.  

Levered free cash flow at $20.21M vs. enterprise value at $101.16M (implies a LFCF/EV ratio at 19.98%).  

Analyst recommendation: 1.0

4. Ultralife Corp. ( ULBI , Earnings , Analysts , Financials ): Ultralife Corporation offers products and services ranging from portable and standby power solutions to communications and electronics systems. Market cap at $64.15M, most recent closing price at $3.61.  

Levered free cash flow at $9.93M vs. enterprise value at $44.37M (implies a LFCF/EV ratio at 22.38%).  

Analyst recommendation: 1.0

(List compiled by James Dennin. Monthly returns sourced from Zacks Investment Research, levered-free cash flow sourced from Yahoo! Finance, all other data sourced from Finviz.)

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: IP

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