To increase your chances of finding a bargain, one method is to screen the market for stocks that are trading at a discount to their estimated intrinsic values as calculated by the projected free cash flow valuation model.
Unlike the discounted cash flow or discounted earnings valuation models, the projected free cash flow model allows investors to estimate the value of companies whose earnings and profits are not regular and may also show losses in some quarters. Projected FCF uses normalized free cash flow and book value.
The following stocks appear to be undervalued by the market according to the projected FCF model. They also have positive recommendation ratings among sell-side analysts on Wall Street.
Builders FirstSource
The first company that meets the criteria is Builders FirstSource Inc. (BLDR, Financial), a Dallas-based manufacturer of building materials.
The stock closed at $67 per share on Wednesday, which represents a discount to the projected free cash flow of $72.85 per share. The share price has risen by 41.30% over the past year for a market capitalization of $2.81 billion and a 52-week range of $47.865 to $86.48.
GuruFocus has assigned a score of 6 out of 10 for the company's financial strength and 8 out of 10 for its profitability.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $93.36 per share.
Vanguard Group is the company's largest shareholder with 10.49% of all outstanding shares. BlackRock is second with 10.04% and FMR LLC is third with 7.74%.
BlueLinx Holdings
The second stock that makes the cut is BlueLinx Holdings Inc. (BXC, Financial), a Marietta, Georgia-based distributor of residential and commercial building products in the U.S.
The stock closed around $76.97 per share on Wednesday, which represents a discount to the projected free cash flow of $136.49 per share. The price has risen 44.17% over the past year for a market capitalization of $726.43 million and a 52-week range of $45.86 to $100.01.
GuruFocus has assigned a score of 6 out of 10 for the company's financial strength and 6 out of 10 for its profitability.
On Wall Street, the stock has a median recommendation rating of buy with an average target price of $108.40 per share.
Among the company's top fund holders, BlackRock has the largest position with 8.44% of outstanding shares. Punch & Associates Investment Management Inc. follows in second with 6.07%, while Jeffrey L. Gendell is third with 5.96%.
Asbury Automotive Group
The third stock that qualifies is Asbury Automotive Group Inc. (ABG, Financial), a Duluth, Georgia-based automotive retailer of new and used vehicles, spare parts and related services in the U.S.
The stock traded around $189.28 per share at close on Wednesday, below the projected free cash flow of $367.62. The share price has risen 1.5% over the past year for a market capitalization of $4.17 billion and a 52-week range of $146.43 to $230.96.
GuruFocus has assigned a score of 5 out of 10 for the company's financial strength and 9 out of 10 for its profitability.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $236.67 per share.
BlackRock is the company's largest shareholder with 15.62% of all outstanding shares. Vanguard Group is second with 11.17% and Impactive Capital LP is third with 9.94%.
