Investing 101: Consumer Goods Stocks Undervalued by Enterprise Value

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(List compiled by Becca Lipman.)

Do you buy groceries? Clothes? Toilet paper? Tires for your car? Paperclips? These purchases all go under the category of "consumer goods," and they represent a very large industry.

For this list we searched for consumer good stocks with market caps over $300M that appear undervalued to the Levered Free Cash Flow/ Enterprise Value Ratio. 

Having trouble with these terms? Have no fear, we all start at the beginning. Let’s take a look at these key terms and why they are valuable tools in analyzing a company’s value.

Market capitalization, commonly referred to as market cap, is the total market value of a company's outstanding shares. It can be thought of as a measure of company's size. It can be calculated by multiplying the number of shares by the current price of the shares.

A company's size can matter when examining risk. Stocks with large market caps are generally less volatile than those with small market caps. 

Levered Free Cash Flow is a calculation of the amount of cash that a company holds after it has paid taxes, repayments on its debts, and any expenditures to maintain or expand business (Capital Expenditure or CapEx). In other words, levered free cash flow is the money that the business can use to grow and pay dividends to shareholders.

Enterprise Value is an alternative measure of a company’s value (instead of using market cap). Theoretically, it is the cost of taking over a company, calculated as market cap plus debt and liabilities minus cash. For example, if Company A were to buy 100% of Company B, it would need to buy all the outstanding shares, the value of which is the market cap. Company A would then be stuck with any debts and liabilities that Company B had. But Company A would also get all of the cash that Company B had in the bank, which would help pay off the debts, etc.

Because cash is an important asset for a company (it allows them to buy new machines, hire more people, etc) and because it is hard to lie about how much cash a company has, a company that holds more cash is seen to be of better value.

The levered free cash flow to enterprise value ratio (LFCF/EV) is one method of measuring the value of a company. The more free cash a company has relative to its enterprise value (a high ratio), the cheaper the company appears.

Do you think these companies are undervalued? Use the following information as a starting point for your own analysis.

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1. General Motors Company (GM): Auto Manufacturers Industry. Market cap of $41.54B. Current price at $27.75. Levered free cash flow at $15.23B vs. Enterprise value of $24.42B. Implies a LFCF/EV value of 62.37%. The stock is currently stuck in a downtrend, trading -7.24% below its SMA20, -7.25% below its SMA50, and -15.34% below its SMA200. It's been a rough couple of days for the stock, losing 8.04% over the last week.

2. Sony Corporation (SNE): Electronic Equipment Industry. Market cap of $25.22B. Current price at $24.98. Levered free cash flow at $10.16B vs. Enterprise value of $29.78B. Implies a LFCF/EV value of 34.12%. It's been a rough couple of days for the stock, losing 6.45% over the last week.

3. National Beverage Corp. (FIZZ): Beverages Industry. Market cap of $683.28M. Current price at $15.12. Levered free cash flow at $142.58M vs. Enterprise value of $585.55M. Implies a LFCF/EV value of 24.35%. Relatively low correlation to the market (beta = 0.42), which may be appealing to risk averse investors. The stock has gained 22.55% over the last year.

4. Domtar Corporation (UFS): Paper & Paper Products Industry. Market cap of $3.39B. Current price at $77.95. Levered free cash flow at $725.38M vs. Enterprise value of $3.39B. Implies a LFCF/EV value of 21.4%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.8). The stock is currently stuck in a downtrend, trading -16.4% below its SMA20, -18.27% below its SMA50, and -10.4% below its SMA200. It's been a rough couple of days for the stock, losing 14.04% over the last week.

5. Ford Motor Co. (F): Auto Manufacturers Industry. Market cap of $46.38B. Current price at $12.24. Levered free cash flow at $21.72B vs. Enterprise value of $126.85B. Implies a LFCF/EV value of 17.12%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.4). Might be undervalued at current levels, with a PEG ratio at 0.93, and P/FCF ratio at 6.32. The stock is currently stuck in a downtrend, trading -7.5% below its SMA20, -9.95% below its SMA50, and -19.62% below its SMA200. It's been a rough couple of days for the stock, losing 8.26% over the last week.

6. Industrias Bachoco S.A.B. de C.V. (IBA): Meat Products Industry. Market cap of $1.17B. Current price at $23.57. Levered free cash flow at $142.57M vs. Enterprise value of $842.18M. Implies a LFCF/EV value of 16.93%. The stock has gained 28.47% over the last year.

7. Sara Lee Corp. (SLE): Processed & Packaged Goods Industry. Market cap of $11.18B. Current price at $19.06. Levered free cash flow at $1.56B vs. Enterprise value of $12.05B. Implies a LFCF/EV value of 12.95%. The stock has gained 32.89% over the last year.

8. TRW Automotive Holdings Corp. (TRW): Auto Parts Industry. Market cap of $6.24B. Current price at $49.87. Levered free cash flow at $884.00M vs. Enterprise value of $6.96B. Implies a LFCF/EV value of 12.7%. This is a risky stock that is significantly more volatile than the overall market (beta = 3.42). The stock is currently stuck in a downtrend, trading -8.42% below its SMA20, -8.71% below its SMA50, and -7.57% below its SMA200. It's been a rough couple of days for the stock, losing 7.05% over the last week.

9. PH Glatfelter Co. (GLT): Paper & Paper Products Industry. Market cap of $694.74M. Current price at $15.07. Levered free cash flow at $105.65M vs. Enterprise value of $911.87M. Implies a LFCF/EV value of 11.59%. The stock is a short squeeze candidate, with a short float at 7.43% (equivalent to 11.44 days of average volume). The stock has gained 35.7% over the last year.

10. Lear Corp. (LEA): Auto Parts Industry. Market cap of $3.80B. Current price at $47.86. Levered free cash flow at $463.95M vs. Enterprise value of $4.14B. Implies a LFCF/EV value of 11.21%. It's been a rough couple of days for the stock, losing 6.63% over the last week.



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 , Investing Ideas , Stocks


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