A company’s free cash flow, defined as the amount of money generated from operations less capital expenditures, offers investors a clue as to how well a company can sustain its operations and, subsequently, build wealth for shareholders,” writes Validea CEO John Reese in a recent article for TheStreet.
Reese outlines some of the cash flow-related metrics included in his guru-inspired investment strategies and offers the following high-scoring picks:
- Maiden Holdings (MHLD) provides reinsurance services to regional and specialty insurers in Europe, the U.S. and other global markets. Favorable cash flow yield and return-on-assets earn high marks, and the relationship between the stock’s price-earnings ratio and earnings-per-share growth is attractive.
- Lear (LEA), a supplier to the global automotive industry, shows well given its healthy cash flow-per-share and total return (EPS growth + yield divided by P/E ratio).
- Greenbrier (GBX) designs, manufactures and markets railroad freight car equipment in Europe and North America. Free cash-per-share is sufficient to cover three years of losses, and the stock has a favorable price-sales ratio.
- Cognizant Technology Solutions (CTSH) provides business process services, consulting and information technology products and services. Free cash flow-per-share is sufficient to pay off the company’s debt in under two years, and long-term EPS growth and average return-on-equity both add interest.