Mike Lippert, portfolio manager for Baron iOpportunity fund, likes to focus on free discretionary cash flow, which he defines as cash flow from operations minus the capital expenditures required to keep the company at its current size. He believes this figure gives him a good snapshot of the company's earnings power. He compares his cash-flow figure with the company's stock price and its projected long-term growth rate to find undervalued shares.
One stock that looks cheap to Lippert by this measure is Equinix (EQIX). The company, based in Foster City, Calif., operates data centers that act as hubs for the Internet. Customers include companies like Google, IBM, Microsoft, and Sony, among thousands of others that distribute content and services over the Internet. As the largest player in the field, Equinix can handle more capacity and offer faster access speeds than smaller rivals. And Equinix management has said it expects its earnings to outstrip its capital expenditures, which means it will be able to add data centers without needing to go into the frozen credit markets. Lippert figures that Equinix trades at about nine times his 2009 estimate for free discretionary cash flow, when historically it has traded at about 15 times. "At this valuation," he says, "it's hard to pass up." 
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