Generally speaking, if a company is trading near its lowest price for the year, there's a good reason for its poor performance. Understandably, most investors may want to keep their distance from these market losers. But some of these lemons could have a pretty sweet upside ... if you're willing to take on the risk.  

Once a stock has taken a sufficient beating, chances are that most of the bad news has already been priced in to it -- so one more piece of negative information probably isn't going to sink its price much lower than it's already fallen. On the other hand, a single positive item could put a rocket on the stock.

But caveat emptor -- when you're dealing with stocks trading at dirt-cheap prices, you may be getting more (or less) than what you bargained for. Remember, companies trading near their lows carry a good deal of risk. If you're not careful, you could find yourself grasping at falling knives -- and that's a game you're sure to lose.

To help you find lower risk names, we started from a pool of stocks trading near 52-week lows and analyzed their cash holdings relative to average quarterly expenses. A relatively high amount of cash ensures that the company will be able to pay its operating expenses, at least in the near term, lowering the risk around it. So if you have the patience to wait out the company's poor performance, it could potentially offer some upside.

For each company, we'll express the levered free cash flow as a percentage of market cap. Levered Free Cashflow (LFCF) measures the amount of cash left over after all interesting payments have been made. The higher the value, the more cash the company has.

Here's a list of beaten up stocks with enough of a cash cushion to keep up with operating costs. Considering the possibility that most of the bad news is already priced into these names, are these stocks being underestimated? (Click here to access free, interactive tools to analyze these ideas.)

Company

Distance From 52-Week Low

Levered Free Cash Flow (LFCF)

NRG Energy (NYSE: NRG)

The stock is currently 7.41% above the 52-week low

Levered free cash flow at $851.12M vs. market cap at $4.85B (LFCF makes up 17.55% of valuation

DreamWorks Animation SKG (NYSE: DWA)

The stock is currently 5.86% above the 52-week low

Levered free cash flow at $389.04M vs. market cap at $2.35B (LFCF makes up 16.55% of valuation

Cephalon (Nasdaq: CEPH)

The stock is currently 1.71% above the 52-week low

Levered free cash flow at $670.61M vs. market cap at $4.25B (LFCF makes up 15.78% of valuation

Deltek (Nasdaq: PROJ)

The stock is currently 4.66% above the 52-week low

Levered free cash flow at $64.69M vs. market cap at $471.82M (LFCF makes up 13.71% of valuation

ICF International (Nasdaq: ICFI)

The stock is currently 10.71% above the 52-week low

Levered free cash flow at $48.82M vs. market cap at $447.90M (LFCF makes up 10.9% of valuation

Tellabs (Nasdaq: TLAB)

The stock is currently 0.57% above the 52-week low

Levered free cash flow at $204.90M vs. market cap at $1.91B (LFCF makes up 10.73% of valuation

Tekelec (Nasdaq: TKLC)

The stock is currently 4.47% above the 52-week low

Levered free cash flow at $55.42M vs. market cap at $529.38M (LFCF makes up 10.47% of valuation

Levered Free Cash Flow data sourced from Yahoo! Finance. The list has been sorted by LFCF as a percentage of market cap.

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. Note: The numbers on top of items represent the forward P/E ratio, if available.


 

Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.

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