(Written by Becca Lipman. List compiled by Eben Esterhuizen, CFA. Levered free cashflow data sourced from Yahoo Finance, rest of data sourced from Finviz.)
Interested in bullish momentum ideas? How about undervalued stocks? If so, this list may be an excellent starting point for your own analysis.
To create the following list we started with a universe of stocks with market caps above $300 million and searched among them names experiencing the "golden cross." The golden cross is a bullish momentum indicator that signals the stock's 50-day moving average has eclipsed its 200-day moving average.
From those names we searched for companies that appear undervalued by the levered free cash flow to enterprise value (LFCF/EV) ratio.
Our final list is below. But first let's quickly review the key implications of these criteria:
If a stock's 50 day moving average crosses above its 200 day moving average (MA), it is called a "Golden Cross." This is typically seen as a bullish signal. It is thought to be a significant favorable turning point, especially if the trend is confirmed by higher trading volume.
The opposite of the Golden cross, when the 50 day moving average crosses below the 200 day moving average, is called a "Death Cross." This is a serious signal of a downtrend.
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 expenditure 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? Will they continue their bullish momentum? Use the following information as a starting point for your own analysis.
Analyze These Ideas (Tools Will Open In A New Window)
1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned
1. Advance America, Cash Advance Centers Inc. (AEA): Provides cash advance services in the United States, the United Kingdom, and Canada. SMA50 at $8.03 vs. SMA200 at $6.22 (price at $7.84.). Levered free cash flow at $65.48M vs. enterprise value at $575.03M (implies a LFCF/EV ratio at 11.39%).
2. China Security & Surveillance Technology, Inc. (CSR): Manufactures, installs, distributes, and services surveillance and safety products, systems, and software in the People's Republic of China. SMA50 at $5.85 vs. SMA200 at $5.12 (price at $6.40.). Levered free cash flow at $46.73M vs. enterprise value at $249.50M (implies a LFCF/EV ratio at 18.73%).
3. Cubist Pharmaceuticals Inc. (CBST): Operates as a biopharmaceutical company focused on the research, development, and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. SMA50 at $33.52 vs. SMA200 at $29.39 (price at $34.99.). Levered free cash flow at $204.20M vs. enterprise value at $1.51B (implies a LFCF/EV ratio at 13.52%).
4. Cephalon Inc. (CEPH): Engages in the discovery, development, and commercialization of products for central nervous system, inflammatory disease, pain, and oncology therapeutic areas. SMA50 at $80.20 vs. SMA200 at $71.55 (price at $81.05.). Levered free cash flow at $675.44M vs. enterprise value at $6.39B (implies a LFCF/EV ratio at 10.57%).
5. CVR Energy, Inc. (CVI): CVR Energy, Inc., together with its subsidiaries, refines and markets transportation fuels in the United States. SMA50 at $25.96 vs. SMA200 at $21.17 (price at $23.90.). Levered free cash flow at $268.52M vs. enterprise value at $2.11B (implies a LFCF/EV ratio at 12.73%).
6. Medicis Pharmaceutical Corp. (MRX): Engages in the development and marketing of products for the treatment of dermatological and aesthetic conditions in the United States, Canada, and Europe. SMA50 at $37.19 vs. SMA200 at $33.20 (price at $36.89.). Levered free cash flow at $203.50M vs. enterprise value at $1.70B (implies a LFCF/EV ratio at 11.97%).
7. BioScrip Inc. (BIOS): Provides pharmacy and home health services in the United States. SMA50 at $6.28 vs. SMA200 at $5.64 (price at $6.25.). Levered free cash flow at $61.67M vs. enterprise value at $603.75M (implies a LFCF/EV ratio at 10.21%).