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Alberto Abaterusso
Alberto Abaterusso
Articles (2544) 

3 Cheap Stock Picks to Consider

Their share prices trade at a discount to the projected free cash flow value

November 04, 2020 | About:

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. (NYSE:LFC).

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 (NYSE:CX), 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. (NYSE:OMF), 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.

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About the author:

Alberto Abaterusso
I am a contributor at GuruFocus. I primarily write about how to pick potential value stocks. Gold, silver and precious metals mining industries is also my cup of tea. 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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