My latest column is up at RealMoney.

Ikon Office Solutions (IKN) was recently upgraded to buy by TheStreet.com Ratings, and as I look at the fundamentals, it isn’t hard to see why.

As the world’s largest independent channel for document management systems and services, Ikon enables customers worldwide to improve document workflow and increase efficiency. Ikon integrates best-in-class copiers, printers and multifunction product technologies from manufacturers such as Canon (CAJ) , Ricoh, Konica Minolta and Hewlett-Packard (HPQ - Annual Report) with document management software from companies such as Captaris (CAPA) , Kofax, eCopy, Electronics for Imaging (EFII) , EMC Documentum (EMC - Annual Report) and others.

Ikon is trading at just 0.78 times book value, well below the industry average of 1.39 times. Although much of that book value is represented by intangible assets, the same can be said of many companies in the industry. Xerox (XRX) , for example, has nearly half of its book value represented by goodwill. For Pitney Bowes (PBI) , it is more than 100%.

Meanwhile, analysts expect Ikon to grow 12% annually over the next three to five years. This estimate is exactly in line with the average growth rate expected for the industry. I don’t see why a stock growing at the same rate as the industry should trade at half the industry’s price/book multiple — especially when its free cash flow is so strong. I believe the valuation should expand to the industry average. If the price/book multiple can expand to the industry average over the next five years, then even if the company only manages to grow at the 8.6% rate forecast by the Street’s most conservative analysts, the total return could exceed 20% annually.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

William Trent currently has a short position in put options related to Office Depot (ODP).

My latest column is up at RealMoney.

I usually want a stock to score highly in four out of five categories before giving it much consideration: earnings momentum, earnings quality, price momentum, free cash flow and return potential.

This week, only three stocks went four for five, and I’ve talked about them all before: W&T Offshore (WTI) , Pitney Bowes (PBI) and Rent-a-Center (RCII) . As I look for new investment ideas, I’m left with three options, each of which has significant drawbacks.

1. Go short
2. Change strategy
3. Stay on the sidelines

I seldom short stocks, but I’ll probably try to scratch out some extra gains by writing covered calls on stocks like Ansys (ANSS) that I like long-term, but that look a little stretched in the near term. I also will likely leave a little cash standing by to put to work when conditions are more favorable. But like many investors, I generally plan to stay long and close to fully invested. In markets like this one, that means shifting gears a little bit.

Without straying too far from my comfort zone, I’m considering letting my winners ride (and possibly paying up for those like WTI that meet my criteria but have seen strong rallies), searching for deep value plays, and possibly even making a speculative play or two.

Disclosure: At the time of publication, William Trent has a covered call position in Ansys (ANSS) and has written put options against the shares of NutriSystem (NTRI).

My latest column is up at RealMoney.

Postal metering market leader Pitney Bowes’ (PBI) stock fell off a cliff last year after missing earnings. However, things do not appear to be getting worse. On the latest conference call, management said the financial services sector is still weak but not “significantly different than what our plan was.” The U.S. postal rate increase is nearing its anniversary and should have minimal impact after that, and the company is “nearing the conclusion of our evaluation of the strategic options for U.S. Management Services and we expect to make a statement by the end of the second quarter.”

Over the last 12 months, Pitney Bowes has generated $834 million in free cash flow (cash from operating activities less capital expenditures.) That represents a very solid 11.2% free cash flow yield on the $7.44 billion market capitalization, a 7.8% premium to the current yield on five-year Treasuries.

With a risk premium that high, I am not especially concerned about growth and could even accept modest declines in cash flow. However, declines are not expected. The lowest estimate on Wall Street calls for 6.1% annual growth over the next three to five years, and the consensus estimate is 12%.

Assuming earnings estimates are on target, simple reversion to the five-year average P/E could justify a $51 price (42% above current levels) within 12-18 months. Longer term, the shares could justify a $67 price within five years based on the lowest growth estimate and an 8% terminal free cash flow yield.

Disclosure: At the time of publication, William Trent has no financial position in the companies mentioned in this article.