If you want to add to your chances to uncover bargains, one way to do so is to look at 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 assess companies 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 three stocks listed below appear undervalued according to the projected FCF model. They also hold positive recommendation ratings amid the community of sell-side analysts in Wall Street.
CNOOC Ltd
The first company that makes the cut is CNOOC Ltd (CEO, Financial), a Hong Kong-based explorer and producer of oil and gas with operating activities primarily in China and North America.
The stock traded at around $115.28 per share at close on Friday, which represents a discount of 51.4% to the projected free cash flow of $237.30 per share.
The share price has fallen by 25.67% over the past year for a market capitalization of $51.47 billion and a 52-week range of $81.11 to $158.45.
GuruFocus has assigned a score of 6 out of 10 for the company's financial strength and of 8 out of 10 for its profitability.
As of February, the stock has a median recommendation rating of buy with an average target price of $140.07 on Wall Street.
Jefferies Financial Group Inc
The second stock that holds the criteria is Jefferies Financial Group Inc (JEF, Financial), a New York-based financial conglomerate company with activities in North America and internationally.
The stock traded at around $28.87 per share at close on Friday, which represents a 68.31% discount to the projected free cash flow of $91.10 per share.
The price has risen 23.32% over the past year, which determined a market capitalization of $7.25 billion and a 52-week range of $11.20 to $29.01.
GuruFocus has assigned a score of 3 out of 10 for the company's financial strength and 5 out of 10 for its profitability.
As of February, the stock has a median recommendation rating of buy with an average target price of $30.50 on Wall Street.
Tenet Healthcare Corp
The third stock that makes the cut is Tenet Healthcare Corp (THC, Financial), a Dallas, Texas-based operator of medical care facilities in the U.S.
The stock traded at around $49.83 per share at close on Friday, representing a 20.5% discount to the projected free cash flow of $62.68.
The share price has risen by 49.50% over the past year, determining a market capitalization of $5.26 billion and a 52-week range of $10 to $52.63.
GuruFocus has assigned a score of 3 out of 10 for the company's financial strength and of 5 out of 10 for its profitability.
As of February, the stock has a median recommendation rating of overweight with an average target price of $58 on Wall Street.
Disclosure: I have no positions in any securities mentioned in this article.
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