When it comes to finding compelling investment ideas, I'm a big fan of conducting research down at the bottom of the barrel. If an area of the market has hit the skids, I want to know why, and more particularly, I want to zero in on the keepers that may be schooling among the dross.

With that in mind ...
When it comes to the market's sectors, few have fared worse over the past three years than health care. During a period that's seen the S&P 500 rise by more than 8% on an annualized basis, the well-heeled likes of Forest Laboratories (NYSE:FRX), Merck (NYSE:MRK), and Pfizer (NYSE:PFE) have all posted declines, as has Biovail (NYSE:BVF) -- a company whose relatively small and more-or-less static levels of free cash flow in recent years may well warrant the spanking it's received.

Hospital chain Tenet Healthcare (NYSE:THC) and small-cap concern Par Pharmaceutical Companies (NYSE:PRX), meanwhile, have also been shown the back of the market's hand, as has Johnson & Johnson (NYSE:JNJ). True, this blue-chip bellwether has managed to eke out a gain over the past three years; however, it's also lagged the S&P over the period.

With that in mind, here's a question: Has Mr. Market been fighting fair with Johnson & Johnson -- or has it merely landed a sucker punch?

Let's go to the tape
To answer that question, let's take a page from my Fool colleague Philip Durell's playbook, and gauge the company's intrinsic value relative to its current stock price using discounted cash flow (DCF) analysis -- the number-crunching tool of choice for investors who aren't wowed by "story" stocks, but instead prefer to invest in cash cows trading on the cheap.

As it happens, Inside Value -- the newsletter service that Philip heads up -- provides a handy-dandy DCF calculator. After spending 15 minutes or so plugging in numbers for such variables as forward-looking earnings estimates, discount rate (your required return, given a company's inherent business risk), and of course, free cash flow -- cash from operations less capital expenditures -- it becomes roughly clear that, at its current price, Johnson & Johnson is trading at a discount to its intrinsic value -- which comes as no surprise. And while this estimate can't be called exact, it's a green light to keep doing our due diligence.

After all, this behemoth has averaged nearly $8 billion in free cash flow in each of the past five years, and its stock currently trades at a price-to-earnings ratio that falls below that of the broader market, the health-care industry average, and its own five-year historical mark.

Make no mistake: That doesn't necessarily mean that you should surf to your nearest online brokerage and place an order posthaste. But it does suggest that, at its current price, Johnson & Johnson is good fodder for your own further-research list.

The Foolish bottom line
If you'd like to cut to the chase and see a complete list of those companies that Inside Value thinks warrant such a coveted spot, I encourage you to snag a completely free newsletter guest pass. Your pass provides 30 days of access to the newsletter's recommendations list, as well as its back-issue archives, members-only discussion boards and, yes, its DCF calculator, too. (That tool, by the way, comes with easy-to-follow instructions that even walk you through the process of valuing Johnson & Johnson, albeit at a time when the company's shares were pricier than they are now.)

Just click here to get started. Your inner cheapskate will thank you for it.

Merck and Johnson & Johnson are both Motley Fool Income Investor recommendations, and Pfizer is a Motley Fool Inside Value pick.

Shannon Zimmerman , lead analyst for Motley Fool Champion Funds, doesn't hold a financial position in any of the companies listed. The Fool is investors writing for investors.