Top 10 Undervalued Stocks With Large Cash Cushions

Analyst target prices can be very useful guides for investors. The target price is a price level set by analysts that, based on their data and estimates, represents their predictions for that company in the upcoming year.

When a company's current market price is deeply lagging to the target price, it may signal that the company has more value to price in (meaning, the stock price may rise).

We wanted to explore this idea by forming a universe of companies that are currently undervalued to target price. And because analysts often have different opinions, and tend to be overly optimistic, we use the lowest analyst target price.

Large cash cushions
To narrow down the list of undervalued companies we looked for companies with enough cash to cover several quarters of operating expenses. After all, large cash holdings implies a company is better prepared to weather shifts in the market or even a more severe finical storm that would cripple them otherwise.

For our list we took only the companies with cash holdings that exceed 4 times the average quarterly operating expense. In other words, all of these companies could operate for more than four quarters without generating any revenue.

The list
Do you think these undervalued stocks can withstand market volatility? Do you think they have the potential to reach their target price?

Use this list as a starting-off point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

List compiled by Eben Esterhuizen, CFA:

1. Ariad Pharmaceuticals (Nasdaq: ARIA  ) : Focuses on the discovery, development, and commercialization of small-molecule drugs for the treatment of cancer. Of the 10 analysts that cover the stock, the lowest price target stands at 14, which implies an upside of 33.08% from current levels around 10.52. Average quarterly operating expense over the last five quarters at $21.44M, vs. most recent cash and short term investments at $86.32M, implies a Cash / Avg. Operating Expense ratio at 4.03.

2. Achillion Pharmaceuticals (Nasdaq: ACHN  ) : Engages in the discovery, development, and commercialization of treatments for infectious diseases. Of the 11 analysts that cover the stock, the lowest price target stands at 7, which implies an upside of 31.58% from current levels around 5.32. Average quarterly operating expense over the last five quarters at $9.54M, vs. most recent cash and short term investments at $65.14M, implies a Cash / Avg. Operating Expense ratio at 6.83.

3. InfoSpace (Nasdaq: INSP  ) : Develops search tools and technologies that assist consumers with finding content and information on the Internet. Of the 5 analysts that cover the stock, the lowest price target stands at 11, which implies an upside of 27.31% from current levels around 8.64. Average quarterly operating expense over the last five quarters at $48.19M, vs. most recent cash and short term investments at $279.27M, implies a Cash / Avg. Operating Expense ratio at 5.8.

4. Pacific Biosciences of California (Nasdaq: PACB  ) : Develops, manufactures, and markets an integrated platform for genetic analysis. Of the 5 analysts that cover the stock, the lowest price target stands at 4, which implies an upside of 28.21% from current levels around 3.12. Average quarterly operating expense over the last five quarters at $37.26M, vs. most recent cash and short term investments at $193.7M, implies a Cash / Avg. Operating Expense ratio at 5.2.

5. MAP Pharmaceuticals (Nasdaq: MAPP  ) : Focuses on the development and commercialization of inhalation therapies for patients suffering from migraine. Of the 6 analysts that cover the stock, the lowest price target stands at 18, which implies an upside of 29.87% from current levels around 13.86. Average quarterly operating expense over the last five quarters at $13.75M, vs. most recent cash and short term investments at $111.84M, implies a Cash / Avg. Operating Expense ratio at 8.13.

6. Iconix Brand Group (Nasdaq: ICON  ) : Operates as a brand management company that engages in licensing, marketing, and providing trend direction for a portfolio of owned consumer brands. Of the 6 analysts that cover the stock, the lowest price target stands at 21, which implies an upside of 33.50% from current levels around 15.73. Average quarterly operating expense over the last five quarters at $36.89M, vs. most recent cash and short term investments at $222.18M, implies a Cash / Avg. Operating Expense ratio at 6.02.

7. GTX (Nasdaq: GTXI  ) : Engages in the discovery, development, and commercialization of small molecules to treat cancer, osteoporosis and bone loss, muscle loss, and other serious medical conditions. Of the 6 analysts that cover the stock, the lowest price target stands at 4, which implies an upside of 26.58% from current levels around 3.16. Average quarterly operating expense over the last five quarters at $11.27M, vs. most recent cash and short term investments at $83.01M, implies a Cash / Avg. Operating Expense ratio at 7.37.

8. Exelixis (Nasdaq: EXEL  ) : Engages in the discovery, development, and commercialization of small molecule drugs for the treatment of cancer, metabolic, and cardiovascular disorders. Of the 6 analysts that cover the stock, the lowest price target stands at 5, which implies an upside of 20.19% from current levels around 4.16. Average quarterly operating expense over the last five quarters at $54.38M, vs. most recent cash and short term investments at $223.16M, implies a Cash / Avg. Operating Expense ratio at 4.1.

9. ZIOPHARM Oncology (Nasdaq: ZIOP  ) : Focuses on the development and commercialization of in-licensed cancer drugs in North America. Of the 6 analysts that cover the stock, the lowest price target stands at 6, which implies an upside of 26.05% from current levels around 4.76. Average quarterly operating expense over the last five quarters at $14.06M, vs. most recent cash and short term investments at $118.93M, implies a Cash / Avg. Operating Expense ratio at 8.46.

10. Gevo (Nasdaq: GEVO  ) : Focuses on the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Of the 7 analysts that cover the stock, the lowest price target stands at 10, which implies an upside of 30.55% from current levels around 7.66. Average quarterly operating expense over the last five quarters at $23.08M, vs. most recent cash and short term investments at $97.61M, implies a Cash / Avg. Operating Expense ratio at 4.23.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above."

The Motley Fool owns shares of Exelixis. Motley Fool newsletter services have recommended buying shares of Pacific Biosciences of California and Exelixis. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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