Nasdaq hits 13 year high — are there still value plays in tech?

By James Dennin for Kapitall.

The Nasdaq Composite 100 has had a killer week, climbing enough already to erase most of the losses it endured during tech's selloff throughout the early spring. The gauge fell around 8%, but as of this morning it is poised to close at a 13-year high.

However, a lot of the biggest gains haven't come from the kind of growth plays that usually generate the most hype amongst investors. 

Sturdy value stocks like Apple (AAPL) and Cisco (CSCO) have led the way, as many investors purchased shares at what they felt was a discount. Apple is up 19% since late April, although some of that is certainly due to excitement over Apple's prospective Beats deal. 

With that in mind, we decided to look for value stocks in the tech industry to see if there are any other companies that investors might have missed. 

These companies should be fairly large, with large cash reserves, trading relatively cheap multiples. Unlike growth investors, value investors are looking for value that's already there that the market has likely missed. 

To find value plays in tech, we started with a universe of American tech stocks with a market capitalization of $2 billion or higher. We then narrowed that screen for stocks that were undervalued by looking at levered free cash flow to enterprise value (LFCF/EV).

This means that the company has a lot of extra cash on hand relative to its size that it can deploy to grow the business or reward investors with dividends and buybacks. Either way, a high ratio of levered free cash to a company's size can also indicate that the company might be undervalued. 

This screen left us with 7 stocks on our list. Do you think they have room to grow? Use the list below to begin your analysis and let us know what you think in the comments. 

Click on the interactive chart to view data over time. 

1. Brocade Communications Systems, Inc. ( BRCD, Earnings, Analysts, Financials): Brocade Communications Systems, Inc. supplies networking equipment comprising end-to-end Internet protocol based Ethernet and storage area networking solutions. Market cap at $3.67B, most recent closing price at $8.46.  

Levered free cash flow at $390.96M vs. enterprise value at $3.14B (implies a LFCF/EV ratio at 12.45%).  

 

2. Diebold, Incorporated ( DBD, Earnings, Analysts, Financials): Provides integrated self-service delivery and security systems and services primarily to the financial, commercial, government, and retail markets worldwide. Market cap at $2.43B, most recent closing price at $37.68.  

Levered free cash flow at $342.06M vs. enterprise value at $2.54B (implies a LFCF/EV ratio at 13.47%).    

 

3. Hewlett-Packard Company ( HPQ, Earnings, Analysts, Financials): Hewlett-Packard Company offers various products, technologies, software, solutions, and services to individual consumers and small- and medium-sized businesses (SMBs), as well as to the government, health, and education sectors worldwide. Market cap at $63.9B, most recent closing price at $33.72.  

Levered free cash flow at $8.21B vs. enterprise value at $71.22B (implies a LFCF/EV ratio at 11.53%).   

 

4. Lexmark International Inc. ( LXK, Earnings, Analysts, Financials): Develops, manufactures, and supplies printing and imaging solutions for offices. Market cap at $2.72B, most recent closing price at $43.61.  

Levered free cash flow at $479.02M vs. enterprise value at $2.43B (implies a LFCF/EV ratio at 19.71%).   

 

5. VeriSign, Inc. ( VRSN, Earnings, Analysts, Financials): Provides Internet infrastructure services to various networks worldwide. Market cap at $6.56B, most recent closing price at $49.92.  

Levered free cash flow at $624.96M vs. enterprise value at $6.22B (implies a LFCF/EV ratio at 10.05%).  

 

6. Western Digital Corp. ( WDC, Earnings, Analysts, Financials): Engages in the design, development, manufacture, and sale of hard drives worldwide. Market cap at $19.94B, most recent closing price at $84.83.  

Levered free cash flow at $2.49B vs. enterprise value at $17.54B (implies a LFCF/EV ratio at 14.2%).  

 

7. Computer Sciences Corporation ( CSC, Earnings, Analysts, Financials): Provides information technology (IT) and professional services to governments and commercial enterprises. Market cap at $14.08B, most recent closing price at $12.06.  

Levered free cash flow at $2.24B vs. enterprise value at $20.52B (implies a LFCF/EV ratio at 10.92%).  

 

(List compiled by James Dennin. Monthly returns sourced from Zacks Investment Research, levered-free cash flow sourced from Yahoo! Finance. All other data sourced from Finviz.)

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

 

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