Broadcom And 2 Other Undervalued Stocks To Own

With central banks signaling that interest rates may stay higher for longer as labor markets hold up, investors are paying closer attention to companies that can fund themselves through solid cash generation. That is where stocks priced below their estimated cash flow value can matter. This article highlights three such US stocks from a cash flow based value screen that may appeal to patient, value focused investors.

The three stocks covered next are only a small sample of this idea, since the full screen surfaced 143 more companies with cash flow stories that are not covered here. To identify and analyze the ones that best fit your own criteria, head straight into the Undervalued Stocks Based On Cash Flows screener.

Broadcom (AVGO)

Broadcom is a large US$1,702.7b digital infrastructure company that designs chips for networking, wireless devices and data centers, and also sells infrastructure software used in private cloud, VMware Cloud Foundation and enterprise security. The Infrastructure Software segment, which includes VMware based subscriptions and support, is a key reason Broadcom appears in a cash flow focused screen, since these contracts can provide recurring, high margin cash generation alongside its semiconductor operations.

Investors looking at Broadcom are not just getting exposure to AI chips. They are also looking at a company flagged by the SWS DCF screen as trading about 24% below estimated cash flow value, with high profit margins, strong forecast returns on equity and a growing base of subscription software tied to VMware and private AI cloud. The flipside is real. Insider selling, customer concentration in large cloud providers and heavy use of external funding for AI infrastructure mean results could be bumpy if spending patterns or financing conditions shift. If you care about durable cash flows in digital infrastructure, Broadcom is a story worth studying more closely before forming a view.

Broadcom’s cash heavy VMware software and AI chip story might be only half the picture. See how the valuation, margins and funding mix line up in the DCF valuation analysis for Broadcom and why one key risk could change the script.

Rocket Lab (RKLB)

Rocket Lab is a US space company that provides launch services and space systems, with its cash flow story closely tied to recurring missions on its Electron rocket and sales of Photon satellites and related hardware. Most revenue currently comes from Space Systems at about US$544 million, with Launch Services contributing around US$225 million, so the satellite and components business is already larger than the rockets that carry them. The stock has a market cap of roughly US$38.5b.

Rocket Lab gives you direct exposure to the growing space economy through a mix of small launch services, spacecraft manufacturing and an expanding backlog of long term government contracts. The stock appears around 45% below the Simply Wall St DCF estimate, yet it also carries a rich P/S multiple and is still loss making, which means a lot of future cash flow is already priced in. Neutron is the big swing, with delays to first flight into early 2027 keeping execution risk high even as contracts stack up. With the planned Iridium acquisition and Space Force work pointing to more recurring cash flow, the key consideration is whether Rocket Lab can convert scale into self funded growth before investors lose confidence.

Rocket Lab’s mix of launch services, satellites and government contracts suggests a story investors may not be fully pricing in yet. Get the full picture on contracts, margins and funding in the analysis report for Rocket Lab

Oracle (ORCL)

Oracle is a long established enterprise software and cloud company that now leans heavily on Oracle Cloud SaaS and cloud license products such as Fusion ERP, HCM and NetSuite to generate recurring subscription cash flows that underpin its place in a cash flow focused value screen. Out of roughly US$67.4b in revenue, around US$58.5b comes from cloud and software, with hardware at about US$3.1b and services around US$5.7b. As a result, investors are mainly looking at a software and cloud cash flow story rather than a hardware one. The stock has a market value of roughly US$457.4b.

Oracle may be of interest to investors who focus on large, contracted cash flows that the market may not be fully pricing in. The company combines a large cloud and software base, improving profitability and an AI heavy backlog that some analysts say runs into the hundreds of billions of dollars in remaining performance obligations. This supports the Simply Wall St view that the stock trades below its DCF fair value. On the other hand, there is meaningful leverage, ongoing cash burn tied to large AI data center build outs and reliance on external funding rather than low cost deposits. For investors who want to see how that trade off between future cash flow and balance sheet risk compares, Oracle is a stock that may warrant a closer look.

Oracle’s sizable cloud and AI backlog could be masking a very different risk return profile than many investors assume. See how the cash flows, leverage and data center spend compare in the 4 key rewards and 2 important warning signs (1 is major!)

Seeking Fresh Alternatives Beyond These Three

Some stocks are already building breakout momentum while others still fly under the radar for now. Before potential entry points attract more attention, consider acting in advance.

• Identify resilient businesses before they attract a fresh wave of buying by scanning the 81 resilient stocks with low risk scores, which currently focuses on keeping volatility in check.
• Track cash-generating leaders in the 72 profitable AI stocks that aren't just burning cash to follow developments in AI-related stocks before trades become crowded and entry prices shift.
• Review the under-the-radar 39 power grid technology and infrastructure stocks to explore companies connected to long-term power demand and infrastructure build outs.

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.

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