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.
ASE Technology Holding
The first company that meets the criteria is ASE Technology Holding Co. Ltd. (ASX, Financial), a Taiwanese provider of various semiconductor packaging and testing as well as electronic manufacturing services to semiconductor manufacturers around the world.
The stock closed at $5.46 per share on Wednesday, which represents a discount to the projected free cash flow of $6.01 per share. The share price has fallen by 23.7% over the past year for a market capitalization of $11.63 billion and a 52-week range of $4.88 to $8.15.
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 $9.10 per share.
Ken Fisher (Trades, Portfolio) is the company's largest shareholder with 1.17% of all outstanding shares. Lazard Asset Management LLC is second with 0.72% and ArrowStreet Capital Ltd. Partnership is third with 0.52%.
Lincoln National
The second stock that makes the cut is Lincoln National Corp. (LNC, Financial), a Radnor, Pennsylvania-based life insurance company.
The stock closed around $47.70 per share on Wednesday, which represents a discount to the projected free cash flow of $92.98 per share. The price has decreased 33.48% over the past year for a market capitalization of $8.12 billion and a 52-week range of $43.01 to $77.57.
GuruFocus has assigned a score of 4 out of 10 for the company's financial strength and 7 out of 10 for its profitability.
On Wall Street, the stock has a median recommendation rating of hold with an average target price of $58.73 per share.
Among the company's top fund holders, Vanguard Group Inc. has the largest position with 11.40% of outstanding shares. BlackRock Inc. follows in second with 8.93%, while State Street Corp. is third with 4.59%.
Nucor
The third stock that qualifies is Nucor Corp. (NUE, Financial), a Charlotte, North Carolina-based manufacturer and seller of steel and steel products serving various markets in North America and Mexico.
The stock traded around $117.85 per share at close on Wednesday, below the projected free cash flow of $173.20. The share price has risen 20.32% over the past year for a market capitalization of $31.12 billion and a 52-week range of $88.5 to $187.9.
GuruFocus has assigned a score of 7 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 hold with an average target price of $126.62 per share.
Vanguard Group is the company's largest shareholder with 12.99% of outstanding shares. State Farm Mutual Automobile Insurance Co. is second with 10.40% and BlackRock is third with 9.10%.
Consumer Portfolio Services
The fourth stock is Consumer Portfolio Services Inc. (CPSS, Financial), a Las Vegas-based specialty finance company engaged in the purchase and servicing of automotive retail contracts held by franchised and independent automotive dealerships in California, Nevada, Virginia, Florida and Illinois.
The stock traded around $7.06 per share at close on Wednesday, below the projected free cash flow of $79.15. The share price has risen 13.92% over the past year for a market capitalization of $139.97 million and a 52-week range of $5.69 to $15.47.
GuruFocus has assigned a score of 2 out of 10 for the company's financial strength and 5 out of 10 for its profitability.
On Wall Street, the stock has a recommendation rating of buy with a target price of $8 per share.
Black Diamond Capital Management, BlackRock and the Vanguard Group are among the largest shareholders of the company with 24.58%, 4.91% and 3.04% of its outstanding shares.
