The 10 Most Undervalued Stocks On Winning Streaks

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(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. LFCF and price data sourced from Yahoo! Finance.)

In the search for companies that have outperformed in a persistent way, we ran a screen on undervalued stocks for those that have seen a persistence of days in which the stock beat the Standard & Poor 500 benchmark over the last month and little persistence in underperforming the S&P 500 — i.e. long winning streaks and short losing streaks — as measured by a ratio of the longest winning streak to the longest losing streak.

Winning Streaks and Why They Are Important To Keep An Eye On

Comparing a stock’s performance to the S&P 500 index is a common tool of investors. The index is comprised of 500 stocks, trading on the US stock market, chosen for their size, dominance in the industry, liquidity, and several other factors. Standard & Poor’s committee of analysts and economists has carefully chosen each stock on this list. The index is commonly used as a representation of the overall stock market, and in some sense an indication of the overall US economy.

Outperforming the index is therefore considered a powerful signal of the company’s strength. Stocks that win out the stock market may also be working off of a strong momentum that can persist for a long time.

Although past performance is no guarantee of future results, winning streaks – when the time periods in which the stock is outperforming the S&P 500 greatly outnumber the times it is underperforming – may indicate upward momentum and positive sentiment

To create the final list we collected data on about 190 stocks that have seen long and sustained winning streaks over the last 30 days.

Additional Screening for Undervalued Stocks

From this universe we collected data on levered free cash flow, and identified the companies most undervalued relative to enterprise value.

Levered free cash flow, or the free cash flow available after paying interest on debt, is a helpful way to measure firm value because it is the cash flow available to shareholders.  Enterprise value is the sum of the firm’s value from all ownership sources: market cap, outstanding debt, and preferred shares. From this value we subtract cash holdings because, in the event of a takeover, that cash would be used towards the takeover price.

When the ratio of levered free cash flow to enterprise value is high, it may indicate that the price is too low. At the very least, it indicates that the company is producing a lot of cash.

The List

Even though these companies have had a great month relative to the rest of the market, they still appear to be undervalued–do you agree?

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

List sorted by the size of the average alpha.

1. Denison Mines Corp. (DNN): Engages in the exploration, development, mining, and milling of uranium primarily in the United States and Canada. Levered free cash flow at $86.59M vs. enterprise value at $489.53M (implies a LFCF/EV ratio at 17.69%). The stock's average daily alpha vs. the S&P500 index stands at 2.06% (measured close to close, over the last month). During this period, the longest winning streak lasted 6 days (i.e. the stock's daily returns outperformed the S&P 500 for 6 consecutive days). The longest losing streak lasted 2 days (i.e. a win streak / losing streak ratio of 3.).

2. Majesco Entertainment Co. (COOL): Provides interactive entertainment products primarily in the United States and Europe. Levered free cash flow at $11.71M vs. enterprise value at $107.77M (implies a LFCF/EV ratio at 10.87%). The stock's average daily alpha vs. the S&P500 index stands at 1.98% (measured close to close, over the last month). During this period, the longest winning streak lasted 8 days (i.e. the stock's daily returns outperformed the S&P 500 for 8 consecutive days). The longest losing streak lasted 2 days (i.e. a win streak / losing streak ratio of 4.).

3. Chart Industries Inc. (GTLS): Chart Industries, Inc. manufactures and supplies engineered equipment used in the production, storage, and end-use of hydrocarbon and industrial gases in the United States and internationally. Levered free cash flow at $179.34M vs. enterprise value at $1.57B (implies a LFCF/EV ratio at 11.42%). The stock's average daily alpha vs. the S&P500 index stands at 1.5% (measured close to close, over the last month). During this period, the longest winning streak lasted 5 days (i.e. the stock's daily returns outperformed the S&P 500 for 5 consecutive days). The longest losing streak lasted 2 days (i.e. a win streak / losing streak ratio of 2.5).

4. hiSoft Technology International Ltd. (HSFT): Provides outsourced information technology (IT) and research and development services in North America, Europe, and Asia. Levered free cash flow at $53.25M vs. enterprise value at $274.48M (implies a LFCF/EV ratio at 19.4%). The stock's average daily alpha vs. the S&P500 index stands at 1.42% (measured close to close, over the last month). During this period, the longest winning streak lasted 5 days (i.e. the stock's daily returns outperformed the S&P 500 for 5 consecutive days). The longest losing streak lasted 2 days (i.e. a win streak / losing streak ratio of 2.5).

5. Xyratex Ltd. (XRTX): Provides modular enterprise-class data storage solutions and storage process technology. Levered free cash flow at $63.68M vs. enterprise value at $259.12M (implies a LFCF/EV ratio at 24.58%). The stock's average daily alpha vs. the S&P500 index stands at 1.25% (measured close to close, over the last month). During this period, the longest winning streak lasted 5 days (i.e. the stock's daily returns outperformed the S&P 500 for 5 consecutive days). The longest losing streak lasted 2 days (i.e. a win streak / losing streak ratio of 2.5).

6. Build-A-Bear Workshop Inc. (BBW): Operates as a specialty retailer of plush animals and related products. Levered free cash flow at $13.68M vs. enterprise value at $83.41M (implies a LFCF/EV ratio at 16.4%). The stock's average daily alpha vs. the S&P500 index stands at 1.13% (measured close to close, over the last month). During this period, the longest winning streak lasted 5 days (i.e. the stock's daily returns outperformed the S&P 500 for 5 consecutive days). The longest losing streak lasted 1 day (i.e. a win streak / losing streak ratio of 5.).

7. Cloud Peak Energy Inc. (CLD): Engages in coal mining operations in the Powder River Basin of the United States. Levered free cash flow at $210.11M vs. enterprise value at $1.89B (implies a LFCF/EV ratio at 11.12%). The stock's average daily alpha vs. the S&P500 index stands at 1.09% (measured close to close, over the last month). During this period, the longest winning streak lasted 7 days (i.e. the stock's daily returns outperformed the S&P 500 for 7 consecutive days). The longest losing streak lasted 2 days (i.e. a win streak / losing streak ratio of 3.5).

8. CTC Media, Inc (CTCM): Operates as an independent broadcasting company in Russia. Levered free cash flow at $410.87M vs. enterprise value at $1.76B (implies a LFCF/EV ratio at 23.34%). The stock's average daily alpha vs. the S&P500 index stands at 0.96% (measured close to close, over the last month). During this period, the longest winning streak lasted 7 days (i.e. the stock's daily returns outperformed the S&P 500 for 7 consecutive days). The longest losing streak lasted 3 days (i.e. a win streak / losing streak ratio of 2.33).

9. Omega Protein Corp. (OME): Distributes fish meal and fish oil products in the United States. Levered free cash flow at $20.93M vs. enterprise value at $197.09M (implies a LFCF/EV ratio at 10.62%). The stock's average daily alpha vs. the S&P500 index stands at 0.96% (measured close to close, over the last month). During this period, the longest winning streak lasted 5 days (i.e. the stock's daily returns outperformed the S&P 500 for 5 consecutive days). The longest losing streak lasted 2 days (i.e. a win streak / losing streak ratio of 2.5).

10. Teradyne Inc. (TER): Provides automatic test equipment products and services worldwide. Levered free cash flow at $207.79M vs. enterprise value at $1.75B (implies a LFCF/EV ratio at 11.87%). The stock's average daily alpha vs. the S&P500 index stands at 0.92% (measured close to close, over the last month). During this period, the longest winning streak lasted 5 days (i.e. the stock's daily returns outperformed the S&P 500 for 5 consecutive days). The longest losing streak lasted 2 days (i.e. a win streak / losing streak ratio of 2.5). 



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 , US Markets


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