With inflation and interest-rate expectations pulled in different directions by oil prices, geopolitics, and uneven growth data, a lot of stocks are being priced more on fear than on their long term cash generation. That is where the Undervalued Stocks Based On Cash Flows screener comes in, focusing on companies that SWS DCF valuation suggests are trading below fair value. By zeroing in on cash flows instead of headline noise, you can look for value when sentiment is blurred. This article highlights 3 of the best stocks currently flagged by the screener.

TTM Technologies (TTMI)

Overview: TTM Technologies is a US based electronics manufacturer that builds high performance printed circuit boards, RF components, and mission systems used in aerospace and defense, data centers, automotive, medical, and industrial equipment worldwide.

Operations: TTM Technologies generates around US$1.7b from Commercial customers and US$1.3b from Aerospace & Defense, with additional smaller adjustments, across the United States (about US$1.6b of revenue) and other international markets.

Market Cap: US$13.7b

Investors looking at TTM Technologies are essentially weighing strong cash flow potential from AI and defense related demand against execution and funding risks. The company is tied into large data center and defense programs, has a US$1.46b aerospace and defense backlog, and analysts expect fast earnings and revenue growth with the stock trading below Simply Wall St's DCF estimate. At the same time, a high P/E, reliance on a handful of key customers, heavier use of external borrowing, and recent insider selling point to real downside if new facilities or demand do not ramp as expected. The full story sits in how these growth projects, margins, and risks line up over the next few years.

TTM Technologies looks like an AI and defense cash flow story that the market has not fully priced, yet the balance of growth projects and funding risk is finely poised in the 4 key rewards and 2 important warning signs

Merck (MRK)

Overview: Merck is a global healthcare company that develops and sells prescription medicines, vaccines, and treatments for both humans and animals, with flagship cancer drug Keytruda and a broad vaccine portfolio at its core.

Operations: Merck generates about US$58.9b from Pharmaceutical products, US$6.6b from Animal Health, and US$0.4b from other revenues.

Market Cap: US$314.9b

Merck attracts attention because it sits at the heart of oncology and vaccines while working through a tricky patent cliff on Keytruda and pressure on GARDASIL sales and global pricing. The company has nearly tripled its late stage pipeline since 2021, is bringing more than 20 potential new growth drivers to market, and is allocating billions to new manufacturing capacity, yet carries high debt, earnings volatility from large one off losses, and a dividend that is not well covered by current earnings. Analysts see earnings growth potential and a stock that screens as undervalued on cash flows, but the key issue is whether Merck’s new cancer and immunology drugs can offset Keytruda’s eventual exclusivity loss and sustain margins.

Merck’s story is not just about Keytruda; it is about whether a rapidly expanding late stage pipeline and fresh manufacturing muscle can reshape earnings. Get the analyst forecasts for Merck before the patent clock runs out

Palantir Technologies (PLTR)

Overview: Palantir Technologies builds software platforms that help governments and companies bring together vast amounts of data, understand what is happening, and coordinate real world decisions, from counterterrorism and defense operations to insurance, marketing, and industrial processes.

Operations: Palantir generates about US$2.8b from Government customers and US$2.5b from Commercial customers, with roughly US$4.0b of revenue from the United States, US$0.5b from the United Kingdom, and US$0.8b from other international markets.

Market Cap: US$317.4b

Palantir Technologies stands out on this cash flow focused screener because it combines a debt free balance sheet loaded with cash, very high profit margins around 43.7%, and rapid earnings growth with a deep role in government and enterprise AI infrastructure. The company is tightly embedded in sensitive U.S. defense programs such as the Army’s Next Generation Command and Control data layer and is partnering with NVIDIA on sovereign AI, which can be hard for rivals to displace. At the same time, the stock trades on a very high P/E and relies entirely on external funding sources for its liabilities, which raises valuation and funding structure questions that the headline growth story does not fully answer.

Palantir Technologies is where AI ambition and real world contracts collide, yet the market debate still circles around the headline P/E. Get the full story in the analysis report for Palantir Technologies

The three stocks covered here are only a starting point, as the full Undervalued Stocks Based On Cash Flows screen on Simply Wall St currently highlights 154 more companies with equally compelling cash flow and valuation stories in the Undervalued Stocks Based On Cash Flows screener. Use the platform to identify and analyze the exact catalysts and narratives that matter to you so you can focus on the highest conviction cash flow opportunities instead of sifting through the entire market on your own.

Take Control of Your Investment Journey

If Merck or any of these companies have caught your attention, register for FREE with Simply Wall St and add your companies to a Watchlist to monitor the share price against the fair value and track any new developments as they happen. Once you've made your move, manage your holdings with our Portfolio Command Center that filters out the noise to deliver only the most critical, actionable updates. Throughout your journey, our Community allows you to filter the best ideas from thousands of investor perspectives. By uncovering hidden catalysts and risks early, you'll accelerate your decision-making and stay one step ahead of the market.

Seeking Fresh Alternatives For Your Curiosity?

Some of the most notable price moves can begin before headlines appear, and by the time broader attention arrives, many potential entry points may no longer be available. Consider looking earlier in the process.

• Look for companies where cash flow strength aligns with a resilient balance sheet by scanning the curated list of solid balance sheet and fundamentals (47 results) while it may still be less widely followed.
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• Monitor early changes in infrastructure-related demand by reviewing a hand picked group of 33 power grid technology and infrastructure stocks while valuations may still appear relatively undiscovered.

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.