In order to increase the likelihood of uncovering bargains, investors should screen for stocks whose share prices are below their intrinsic value according to the projected free cash flow valuation model.
Unlike the discounted cash flow or discounted earnings valuation models, the projected free cash flow model can be used for companies whose record of revenue and earnings is not consistent and may include losses in some quarters. The projected free cash flow uses normalized free cash flow and book value.
Thus, investors may be interested in the following listed securities, as they appear undervalued according to the projected free cash flow model and have also received positive recommendation ratings from Wall Street sell-side analysts.
UBS Group
The first stock that qualifies is UBS Group AG (UBS, Financial), the Swiss diversified bank giant.
The stock was trading at a price of $12.29 per share at close on Friday, which represents a discount of 35.5% to the projected free cash flow of $19.06.
The share price has risen 10.3% over the past year for a market capitalization of $43.9 billion and a 52-week range of $7.48 to $13.49.
GuruFocus has assigned a low score of 3 out of 10 for the company's financial strength, but a moderate score of 4 out of 10 for its profitability.
UBS Group holds one recommendation rating of strong buy on Wall Street with an average target price of $14.27 per share.
Navient
The second stock that makes the cut is Navient Corp. (NAVI, Financial), a Wilmington, Delaware-based provider of credit services and business processing service solutions to clients in education, health care and government.
The stock was trading at a price of $9.21 per share at close on Friday, which represents an 87.1% discount to the projected free cash flow of $71.49.
The share price has declined nearly 30% in the past year, determining a market capitalization of $1.79 billion and a 52-week range of $4.07 to $15.5.
GuruFocus has assigned a low score of 2 out of 10 for the company's financial strength and another low score of 3 out of 10 for its profitability.
The stock has an overweight recommendation rating with an average target price of $11.25 per share on Wall Street.
Telefonica
The third stock that meets the criteria is Telefonica SA (TEF, Financial), a Spanish telecommunication services provider in Europe and South America.
The stock was trading at a price of $3.92 per share at close on Friday, for a 63.4% discount to the projected free cash flow of $10.71.
The share price has fallen by 46.43% over the past year, determining a market capitalization of $20.58 billion and a 52-week range of $3.75 to $8.06.
GuruFocus has assigned a positive score of 5 out of 10 for the company's financial strength and another positive score of 6 out of 10 for its profitability.
On Wall Street, the stock holds an overweight recommendation rating with an average target price of $6.47 per share.
Disclosure: I have no positions in any security mentioned in this article.
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