With 10 year US Treasury yields back near 4.71% and investors focused on bond markets, attention often shifts away from companies that quietly generate solid cash flows. That creates room for mispricing. When the discount rate story dominates, some cash rich stocks can trade below their estimated fair value. This article highlights three ideas from the Undervalued Stocks Based On Cash Flows screener that may warrant a closer look.

The stocks covered below are only a small sample from this idea, and the full screen surfaced 143 more companies with equally compelling cash flow stories that are not covered in this article. To go straight to the source and identify your own highest conviction ideas, head into the Undervalued Stocks Based On Cash Flows screener.

Broadcom (AVGO)

Broadcom is a large digital infrastructure company that designs semiconductor chips for networking and AI hardware and also sells infrastructure software for private cloud, mainframes and cybersecurity. The key link to the cash flow theme is its Infrastructure Software segment, including VMware and mainframe products, which provides recurring subscription and licensing revenue of about US$27.7b alongside around US$47.8b from Semiconductor Solutions. The company is very large, with a market cap of roughly US$1.75t.

Investors looking at Broadcom are really looking at two powerful engines in one company. On one side, there is a fast growing AI and custom silicon hardware business that benefits when big cloud and internet platforms invest in more computing. On the other, there is a large VMware and mainframe software portfolio that brings in recurring, high margin cash flows. High profit margins and strong expected returns on equity point to a business that turns a lot of those revenues into cash, although the sizeable debt load and recent insider selling mean you should not ignore balance sheet risk or timing. The key question is how the market will weigh those durable software cash flows against the AI-related activity in the years ahead.

Broadcom’s combination of AI hardware and recurring software cash flows could be masking what really drives its valuation. Get the fuller picture with the 4 key rewards and 2 important warning signs

Advanced Micro Devices (AMD)

Advanced Micro Devices is a large semiconductor company focused on high performance computing, with its strongest link to the cash flow theme coming from the Data Center segment, where EPYC server processors and Instinct AI accelerators support AI and cloud infrastructure customers. Data Center brings in about US$22.2b of revenue, alongside US$11.8b from Client, US$3.6b from Gaming and US$3.7b from Embedded. This keeps AMD diversified across PCs, consoles and embedded computing. The company is sizeable, with a market cap of roughly US$772.6b.

Investors watching AMD should pay close attention to how much cash the Data Center segment can actually produce as EPYC and Instinct products scale into AI racks with partners like Microsoft, Meta and Anthropic. Rich expectations around future revenue, heavy AI R&D spend, competition from Nvidia and Intel, and regulatory questions around exports introduce execution risk. The interest lies in whether this mix of strong data center demand, improving earnings quality and a discount to SWS’s cash flow based fair value can outweigh those uncertainties.

AMD’s accelerating AI story and heavy Data Center focus can look clear on the surface, yet the real tension sits in the cash flow detail. See how the analyst forecasts for Advanced Micro Devices might shift your view on what happens next.

Rocket Lab (RKLB)

Rocket Lab is a space company that launches small satellites and builds the hardware and software that keeps them operating, with its Electron rocket and planned Neutron vehicle forming the launch services backbone that underpins its cash flow potential in this screener. While the Space Systems segment currently contributes more revenue at about US$544 million versus roughly US$225 million from Launch Services, it is the recurring small satellite launch contracts and related services that drive the discounted cash flow story. The company is relatively small compared with giant aerospace peers, with a market cap of about US$43.4b.

Rocket Lab gives you direct exposure to the growing space economy through a mix of launch services, satellite manufacturing and planned satellite communications via the Iridium acquisition. The stock screens as undervalued on Simply Wall St’s DCF, with launch and on orbit services doing most of the heavy lifting for future cash flows, while the Neutron rocket and record backlog of US government and defense contracts hint at a much larger role if execution goes well. The trade off is meaningful, with current losses, past shareholder dilution and heavy Neutron spending all raising the bar for turning that growth into durable free cash flow.

Rocket Lab’s accelerating launch and space systems story can obscure what its cash flows might look like if Neutron and government contracts ramp as planned. Get the analysis report for Rocket Lab to see the key risk that could flip this narrative.

Seeking Fresh Alternatives Beyond These Three

Fresh ideas move fast. Breakout stories gain momentum, under the radar for now, then fly once the crowd catches on. Scan these curated lists before the window drops and consider them while they are still timely.

• Target reliable income streams by reviewing the hand picked 12 dividend fortresses that aim to keep cash coming in while prices move around.
• Track powerful infrastructure momentum with a focused set of 39 power grid technology and infrastructure stocks positioned around the systems that keep energy and data flowing.
• Hunt for under the radar quality with a curated 18 high quality undiscovered gems that screens for fundamentals first, while prices still lag the story.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.