If you want to increase your chances of coming across bargains, one way is to pick stocks that are probably trading at a discount to their intrinsic value resulting from the projected free cash flow valuation model.
Unlike the discounted cash flow or discounted earnings valuation models, the projected FCF model can be applied to assess businesses whose history of revenue and earnings is erratic and may also include losses in some quarters. The projected FCF uses normalized free cash flow and book value.
The following stocks appear undervalued according to the projected FCF model and also hold positive recommendation ratings that sell-side analysts have issued on Wall Street.
China Life Insurance
The first stock that qualifies is China Life Insurance Co. Ltd. (LFC, Financial).
The Chinese life insurance company traded at around $11.31 per American depository receipt at close on Tuesday, which represents a discount of approximately 26% to the projected free cash flow of $15.28 per ADR.
The ADR price has fallen by 15.7% over the past year for a market capitalization of $63.93 billion and a 52-week range of $8.27 to $14.7.
GuruFocus has assigned a score of 6 out of 10 for both the company's financial strength and its profitability.
As of October, the stock has one recommendation rating of buy with a target price of $30.
Cemex
The second stock that meets the criteria is Cemex SAB de CV (CX, Financial), a Mexican building materials company.
The stock traded at around $4.26 per ADR at close on Tuesday, which represents a nearly 97% discount to the projected free cash flow of $128.35 per ADR.
The price has risen 10.4% over the past year, which determined a market capitalization of $6.44 billion and a 52-week range of $1.55 to $4.37.
GuruFocus has assigned a score of 5 out of 10 for the company's financial strength and 6 out of 10 for its profitability.
As of October, the stock has a median recommendation rating of overweight with an average target price of $4.35.
OneMain Holdings
The third stock that meets the criteria is OneMain Holdings Inc. (OMF, Financial), an Evansville, Indiana-based provider of consumer finance and insurance products and services.
The stock traded at around $37.54 per share at close on Tuesday, representing an 81% discount to the projected free cash flow of $197.14.
The share price has fallen 10.1% over the past year, determining a market capitalization of $5.04 billion and a 52-week range of $12.21 to $48.92.
GuruFocus has assigned a score of 3 out of 10 for the company's financial strength and of 4 out of 10 for its profitability.
As of October, the stock has a median recommendation rating of buy with an average target price of $45.06.
Disclosure: I have no positions in any securities mentioned in this article.
Read more here:
- A Trio of Stocks With Low Shiller Price-Earnings Ratios
- A Trio of Stocks With a History of Sales and Earnings Growth
- 3 Long-Term Payers Announce Dividends
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
