Undervalued Rally Stocks: These 10 Companies Have Loads of Cash and Momentum

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When stock analysts endeavor to determine a company's valuation, they often use Enterprise Value as an alternative to market capitalization. Enterprise value is a figure that theoretically represents the entire cost of a company if someone were to acquire it.

So why do some analysts favor this metric? Joshua Kennon at About.com explains: "Enterprise value is a more accurate estimate of takeover cost than market capitalization because it takes includes a number of important factors such as preferred stock, debt, and cash reserves that are excluded from the latter metric."

Here's how it's calculated: first take the sum of a company's market cap, preferred stock and outstanding debt. Then, subtract its cash and cash equivalents (found on the corporate balance sheet). This leaves you with the amount it would cost to purchase the entirety of a company's common stock, preferred stock, and outstanding debt.
 
Value investors will look for companies that are generating a lot of cash flow in relation to enterprise value, says Kennon. "Businesses that tend to fall into this category are more likely to require little additional reinvestment; instead, the owners can take the profit out of the business and spend it or put it into other investments."

To create today's list, we started with about 200 stocks in rally mode. We then collected data on enterprise value and levered free cash flow, and ultimately identified the most undervalued rally stocks by the Levered Free Cashflow to Enterprise Value (LFCF/EV) ratio. (Note: Levered Free Cashflow is the amount of cash available to stockholders after interest payments on debt are made)

Do you think these undervalued rally stocks have more upside? Use this list as a starting point for your own analysis.

 

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1. Activision Blizzard, Inc. (ATVI): Activision Blizzard, Inc. publishes online, personal computer (PC), console, handheld, and mobile games of interactive entertainment worldwide. The stock is currently trading 4.22% above its SMA20, 0.42% above its SMA50, and 1.27% above its SMA200. Levered free cash flow at $1.35B vs. enterprise value at $10.56B (implies a LFCF/EV ratio at 12.78%).

2. The Chubb Corporation (CB): Provides property and casualty insurance to businesses and individuals. The stock is currently trading 2.75% above its SMA20, 0.3% above its SMA50, and 1.95% above its SMA200. Levered free cash flow at $2.58B vs. enterprise value at $19.86B (implies a LFCF/EV ratio at 12.99%).

3. Cephalon Inc. (CEPH): Engages in the discovery, development, and commercialization of products for central nervous system, inflammatory disease, pain, and oncology therapeutic areas. The stock is currently trading 0.89% above its SMA20, 0.8% above its SMA50, and 14.33% above its SMA200. Levered free cash flow at $675.44M vs. enterprise value at $6.36B (implies a LFCF/EV ratio at 10.62%).

4. CF Industries Holdings, Inc. (CF): Manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide. The stock is currently trading 9.4% above its SMA20, 16.37% above its SMA50, and 29.82% above its SMA200. Levered free cash flow at $1.72B vs. enterprise value at $13.88B (implies a LFCF/EV ratio at 12.39%).

5. CVR Energy, Inc. (CVI): CVR Energy, Inc., together with its subsidiaries, refines and markets transportation fuels in the United States. The stock is currently trading 8.89% above its SMA20, 6.93% above its SMA50, and 34.62% above its SMA200. Levered free cash flow at $268.52M vs. enterprise value at $2.31B (implies a LFCF/EV ratio at 11.62%).

6. Expedia Inc. (EXPE): Operates as an online travel company in the United States and internationally. The stock is currently trading 6.97% above its SMA20, 3.66% above its SMA50, and 17.29% above its SMA200. Levered free cash flow at $816.41M vs. enterprise value at $7.58B (implies a LFCF/EV ratio at 10.77%).

7. Garmin Ltd. (GRMN): Operates as a holding company and through its subsidiaries, designs, develops, manufactures, and markets global positioning system (GPS) enabled products and other navigation, communication, and information products worldwide. The stock is currently trading 1.97% above its SMA20, 0.31% above its SMA50, and 1.43% above its SMA200. Levered free cash flow at $890.62M vs. enterprise value at $5.02B (implies a LFCF/EV ratio at 17.74%).

8. The McGraw-Hill Companies, Inc. (MHP): Provides various information services for financial, educational, and business information markets worldwide. The stock is currently trading 6.03% above its SMA20, 1.59% above its SMA50, and 7.43% above its SMA200. Levered free cash flow at $1.27B vs. enterprise value at $12.59B (implies a LFCF/EV ratio at 10.09%).

9. 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. The stock is currently trading 5.53% above its SMA20, 2.38% above its SMA50, and 17.49% above its SMA200. Levered free cash flow at $203.50M vs. enterprise value at $1.73B (implies a LFCF/EV ratio at 11.76%).

10. Telefonos de Mexico, S.A.B. de C.V. (TMX): Provides telecommunications services primarily in Mexico. The stock is currently trading 0.4% above its SMA20, 3.41% above its SMA50, and 1.9% above its SMA200. Levered free cash flow at $2.10B vs. enterprise value at $20.51B (implies a LFCF/EV ratio at 10.24%).



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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