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Alberto Abaterusso
Alberto Abaterusso
Articles (2275) 

A Trio of Stocks Trading at a Discount

Their share prices are below the projected free cash flow

July 13, 2020 | About:

In order to have a higher chance to come across bargains, investors can screen the market for stocks that are likely trading at discount to their intrinsic value. In this article, I have used the projected free cash flow (FCF) valuation model.

Unlike the discounted cash flow or discounted earnings valuation model, the projected FCF model can apply to companies whose history of revenue and earnings is not consistent. The projected FCF uses normalized free cash flow and book value.

Thus, the investors may want to consider the following stocks, as they are undervalued according to the projected FCF model and also hold optimistic recommendation ratings on Wall Street.

Bank of America Corp

The first stock that makes the cut is Bank of America Corp (NYSE:BAC).

The U.S. bank major traded at a price of $24.02 per share at close on Friday, which represents a 57.8% discount to the projected FCF of $56.91.

The stock price has declined 17.8% in the past year, determining a market capitalization of $208.39 billion and a 52-week range of $17.95 to $35.72.

GuruFocus has assigned a score of 3 out of 10 for both the company’s financial strength and profitability.

Bank of America Corp holds an overweight recommendation rating with an average target price of $28.36 per share on Wall Street.

The company's top fund holder is Warren Buffett with 10.66% of shares outstanding, followed by VANGUARD GROUP INC with 7.27% and BlackRock Inc. with 6.25%.

Petroleo Brasileiro SA Petrobras

The second stock that meets the above listed criteria is Petroleo Brasileiro SA Petrobras (NYSE:PBR).

The Brazilian oil and gas giant was trading at a price of $8.70 per share at close on Friday, about 31% below the projected FCF of $12.60.

The stock price has fallen by 47.2% in the past year for a market capitalization of $54.78 billion and a 52-week range of $4.01 to $16.95.

GuruFocus has assigned a score of 3 out of 10 for the company’s financial strength and a score of 6 out of 10 for its profitability.

Wall Street sell-side analysts issued a buy recommendation rating for shares of Brasileiro SA Petrobras and an average target price of $12.33 per unit.

With 1.01% of shares outstanding, Jim Simons is the company's top fund holder, followed by Capital World Investors with 0.94% and Ken Fisher with 0.58%.

Morgan Stanley

The third stock that meets the criteria is Morgan Stanley (NYSE:MS).

The U.S. investment bank major traded at a price of $49.80 per share at close on Friday, representing a 53% discount to the projected FCF of $106.19.

The stock price has risen 12% in the past year, determining a market cap of $78.47 billion and a 52-week range of $27.2 to $57.57.

GuruFocus has assigned a score of 3 out of 10 for the company’s financial strength and 4 out of 10 for its profitability.

Morgan Stanley holds a buy recommendation rating with an average target price of $54.15 per share on Wall Street.

With 23.93% of shares outstanding, MITSUBISHI UFJ FINANCIAL GROUP INC is the company's top fund holder, followed by STATE STREET CORP with 7.19% and VANGUARD GROUP INC with 6.42%.

Disclosure: I have no positions in any security mentioned in this article.

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About the author:

Alberto Abaterusso
I am a contributor at GuruFocus. I primarily write about gold, silver and precious metals mining industries. My articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. I hold a Master's Degree in Business Administration from Università degli Studi di Bari (Italy), Aldo Moro. I am based in The Netherlands.

You can follow me on Twitter at https://twitter.com/AAbaterusso

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