One of my stock screening techniques is to use the EV = FCF / (k-g) formula, and look for ideas where the implied terminal growth is less than zero. This is a very short shortcut… I know!

Assuming k or WACC = 9%, we can calculate the implied growth as:

g = 9% - FCF/EV

The EV in this case is being set by the market (enterprise value = market cap + net debt)

I assume TTM FCF = next year FCF, because I don’t have access to forward estimates (another shortcut).

You have to add your fundamental lens to filter out interesting ideas. The data is not clean, for example, SIG has a high FCF number because of a one time drop in account receivable.

To narrow the list for this post, I further filtered down the list to stocks with upside > 10% based on consensus price targets.

Here are the results using data from Yahoo Finance on the S&P 500 tech, industrial, healthcare, and consumer sectors. Yahoo Finance data is very noisy with missing FCF data for many stocks, so this list is not complete, and possibly inaccurate. So again, we need to use our fundamental knowledge to filter through the data.

Companies on this list that interest me now are: DISCK, TWX, NWL, FL, PDCO, SRCL and AGN.