What are we looking for?
U.S. companies that have fallen sharply from their highs but still generate strong free cash flow, carry clean balance sheets and trade at discounted valuations.
The screen
U.S. equity markets sold off sharply last week, led by technology shares. The Nasdaq Composite fell 4.2 per cent on Friday, its steepest single-day decline since April, 2025, as renewed doubts about stretched technology valuations triggered broad selling. Semiconductors and software were hit the hardest, possibly owing to growing fears that artificial intelligence will diminish demand for services that information-technology and consulting firms sell. Broad market selloffs often create buying opportunities for savvy investors looking to pick off companies trading at attractive valuations.
Using FactSet’s screening tool, I identified high-quality U.S. companies that have fallen sharply from their highs by applying the following criteria:
- included in the S&P 500
- market capitalization greater than US$10-billion
- free cash flow yield greater than 4 per cent
- net debt to EBITDA (earnings before interest, taxes, depreciation and amortization) below 2.5 times
- forecast to grow both sales and earnings over the next year
- decline greater than 30 per cent from the 52-week high
The seven companies that passed were ranked by a multifactor composite of free cash flow yield, net debt to EBITDA, forward price-to-earnings and forward enterprise-value-to-EBITDA. Forward multiples were chosen to reflect analyst expectations for growth in the year ahead.
What we found
Cognizant Technology Solutions Corp. CTSH-Q, an information-technology services provider, ranked first. The stock has fallen 38.9 per cent from its 52-week high and trades at 9.3 times forward earnings, well below the group average of 14.5 times.
Investors fear that AI coding tools will reduce demand for the outsourced labour behind Cognizant’s revenue, which may be overstated. In its first quarter ended March 31, 2026, revenue rose 5.8 per cent year-over-year to US$5.4-billion and trailing 12-month bookings climbed 11 per cent to US$29.6-billion, as clients hired the company to help deploy AI rather than replace it.
Cognizant holds more cash than debt, reflected in its negative net-debt-to-EBITDA, pays a 2.5-per-cent dividend and in May doubled its 2026 buyback target to US$2-billion from US$1-billion, with management stating the shares significantly undervalue the business.
Accenture PLC ACN-N, a global consulting and technology services firm, ranked second. Its shares have dropped 44.6 per cent from their 52-week high and yield 3.7 per cent, the highest dividend in the group.
Accenture faces a similar concern to Cognizant, that AI could compress the billable hours underpinning consulting revenue. Yet in its second quarter ended Feb. 28, 2026, it posted record new bookings of US$22.1-billion and raised its full-year free cash flow forecast to as much as US$11.5-billion, citing strong AI-driven demand as clients hire it to deploy that same technology.
Like Cognizant, Accenture holds more cash than debt. At 12.9 times forward earnings, it trades below both the group average and the broader market. Accenture reports third-quarter results on June 18.
The information in this article is not investment advice. The author assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.
Arjun Deiva, CFA, is an MBA candidate at the University of California, Berkeley, Haas School of Business.