Investing 101: The Most Undervalued Consumer Goods Stocks

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(List compiled by Becca Lipman. Data sourced from Finviz.)

On August 2nd Kapitall ran a screen on consumer good stocks undervalued by enterprise value, that is, using the levered free chase flow to enterprise value ratio. Given the market volatility experienced this August, we revisit that screen today.

Of today's top ten undervalued consumer good stocks, four names are repeats from our last screen: GMUFSTRW, and LEA.

While some names appear less undervalued than before (GM and F), others appear more undervalued, albeit marginally.  

To create our lists we searched for consumer good stocks with market caps over $300 million that appear undervalued to the levered free cash flow / enterprise value ratio.

Want more detail on this screen? 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 $34.32B. Current price at $23.61. Levered free cash flow at 4.98B vs. enterprise value at 15.00B, implies a LFCF/EV ratio of 33.2%. The stock has performed poorly over the last month, losing 18.61%.

2. Domtar Corporation (UFS): Paper & Paper Products Industry. Market cap of $3.19B. Current price at $77.51. Levered free cash flow at 692.25M vs. enterprise value at 3.13B, implies a LFCF/EV ratio of 22.12%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.72). The stock has had a couple of great days, gaining 8.41% over the last week.

3. Ford Motor Co. (F): Auto Manufacturers Industry. Market cap of $39.52B. Current price at $10.75. Levered free cash flow at 18.36B vs. enterprise value at 116.31B, implies a LFCF/EV ratio of 15.79%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.36). Might be undervalued at current levels, with a PEG ratio at 0.8, and P/FCF ratio at 5.53. The stock has performed poorly over the last month, losing 15.58%.

4. Movado Group, Inc. (MOV): Recreational Goods Industry. Market cap of $316.47M. Current price at $13.1. Levered free cash flow at 29.42M vs. enterprise value at 207.18M, implies a LFCF/EV ratio of 14.2%. The stock has had a couple of great days, gaining 14.48% over the last week. The stock has performed poorly over the last month, losing 20.44%.

5. TRW Automotive Holdings Corp. (TRW): Auto Parts Industry. Market cap of $4.68B. Current price at $39.84. Levered free cash flow at 733.12M vs. enterprise value at 5.24B, implies a LFCF/EV ratio of 13.99%. This is a risky stock that is significantly more volatile than the overall market (beta = 3.43). The stock has had a couple of great days, gaining 6.92% over the last week. The stock has performed poorly over the last month, losing 25.5%.

6. Buckeye Technologies Inc. (BKI): Paper & Paper Products Industry. Market cap of $1.03B. Current price at $26.51. Levered free cash flow at 141.58M vs. enterprise value at 1.10B, implies a LFCF/EV ratio of 12.87%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.5). The stock has had a couple of great days, gaining 7.89% over the last week.

7. Lear Corp. (LEA): Auto Parts Industry. Market cap of $3.42B. Current price at $45.6. Levered free cash flow at 463.95M vs. enterprise value at 3.63B, implies a LFCF/EV ratio of 12.78%. The stock has had a couple of great days, gaining 7.79% over the last week.

8. Pitney Bowes Inc. (PBI): Business Equipment Industry. Market cap of $3.85B. Current price at $19.48. Levered free cash flow at 871.83M vs. enterprise value at 7.47B, implies a LFCF/EV ratio of 11.67%. The stock is a short squeeze candidate, with a short float at 11.49% (equivalent to 7.93 days of average volume). The stock has performed poorly over the last month, losing 11.06%.

9. Fresh Del Monte Produce Inc. (FDP): Farm Products Industry. Market cap of $1.42B. Current price at $24. Levered free cash flow at 167.94M vs. enterprise value at 1.45B, implies a LFCF/EV ratio of 11.58%. The stock has had a couple of great days, gaining 5.86% over the last week.

10. Canon Inc. (CAJ): Photographic Equipment & Supplies Industry. Market cap of $61.19B. Current price at $46.47. Levered free cash flow at 4.55B vs. enterprise value at 44.31B, implies a LFCF/EV ratio of 10.27%. Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 3.37%, current ratio at 2.39, and quick ratio at 1.86. The stock has gained 10.96% over the last year.



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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