If you want to increase your chances of identifying bargains, one way to do so is to pick equities that are trading at a discount to their intrinsic value estimate as calculated 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 appraise businesses whose record of revenue and earnings is erratic and may also incorporate losses in some quarters. The projected FCF uses a normalized free cash flow and book value.
The following stocks appear undervalued according to the projected FCF model. They also hold positive recommendation ratings from sell-side analysts on Wall Street.
H.B. Fuller Co
The first stock that qualifies is H.B. Fuller Co (FUL, Financial). The Saint Paul, Minnesota-based global specialty chemicals company traded at around $53.34 per share at close on Wednesday, which represents a discount of nearly 10% to the projected free cash flow of $58.61 per share.
The share price has risen by 3.07% over the past year for a market capitalization of $2.76 billion and a 52-week range of $23.68 to $55.28.
GuruFocus has assigned a score of 4 out of 10 for the company's financial strength and of 7 out of 10 for its profitability.
As of December, the stock has a median recommendation rating of overweight with an average target price of $57.14 on Wall Street.
ASGN Inc
The second stock that meets the criteria is ASGN Inc (ASGN, Financial), a Glen Allen, Virginia-based provider of professional staffing and IT solutions to several private and public organizations in the U.S. and internationally. The stock traded at around $84.16 per share at close on Wednesday, which represents a 0.4% discount to the projected free cash flow of $84.46 per share.
The price has risen 18.87% over the past year, which determined a market capitalization of $4.45 billion and a 52-week range of $29.04 to $87.48.
GuruFocus has assigned a score of 6 out of 10 for the company's financial strength and 8 out of 10 for its profitability.
As of December, the stock has a median recommendation rating of overweight with an average target price of $82.86 on Wall Street.
Interactive Brokers Group Inc
The third stock that meets the criteria is Interactive Brokers Group Inc (IBKR, Financial), a Greenwich, Connecticut-based automated electronic broker for global capital markets operators. The stock traded at around $60.86 per share at close on Wednesday, representing an 11.6% discount to the projected free cash flow of $68.87.
The share price has risen by 30.32% over the past year, determining a market capitalization of $26.07 billion and a 52-week range of $33.7 to $61.35.
GuruFocus has assigned a score of 4 out of 10 for the company's financial strength and of 5 out of 10 for its profitability.
As of December, the stock has a median recommendation rating of overweight with an average target price of $57 on Wall Street.
Disclosure: I have no positions in any securities mentioned in this article.
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