The markets have been in a rally mode since the beginning of 2013. The S&P 500 closed above 1,500 for the first time in more than five years on January 25, 2013, as strong earnings continued to boost the index. Investors' sentiment is very bullish, and the market is driven by extreme greed. Nonetheless, intelligent investors know that too much optimism may not be a good thing, as quoted from Warren Buffett, "Be fearful when everyone is greedy. Be greedy when everyone is fearful." The central theme of this article is not to predict the market direction, but to review a list of high quality large-cap stocks that generate strong free cash flow while continuing to grow its revenue. So, when the tide turns, investors can still count on steady cash flows from these stocks with solid fundamentals.
Company Name (Ticker)
Levered Free Cash Flow, ttm
Cisco Systems, Inc. (CSCO)
China Mobile Ltd. (CHL)
The Coca-Cola Company (KO)
Source: Yahoo Finance
Cisco Systems, Inc.
Cisco Systems, Inc. is the world's leading supplier of data networking equipment and software. Cisco provides a line of products for transporting data, voice and video around the world, including routers, switches, access equipment and network management software. Cisco has emerged from a challenging three-year period as a leaner, more focused competitor. Cisco has recently sold its Linksys unit to Belkin as the company is moving away from consumer products and focusing on big businesses. Cisco is well positioned in 2013 to maintain its market share and operating margin as Cisco's long-term competitive edge remains intact.
Fundamentally, CSCO has an enterprise value of $83.62B with a market cap of $112.29B. CSCO has a total cash of $45.00B and a total debt of $16.33B. CSCO has a higher operating margin of 22.5%, ttm, and net margin of 17.9%, ttm, as compared to the industry averages of 9.9% and 7.3%, ttm, respectively. CSCO has higher ROE of 16.7, compared to the average of 10.1. CSCO has a P/E of 13.6, which is lower than the industry average of 30.5 and CSCO's 5 year average of 16.0. CSCO has a forward P/E of 10.2, which is lower than the S&P 500's 13.3.
Technically, CSCO is bullish. CSCO closed at $21.15 with 0.62% gain on January 25, 2013. The MACD (12, 26, 9) is near neutral with the MACD Histogram at -0.01. The momentum indicator, RSI (14), is showing a strong bullish momentum at 67.43. CSCO is currently trading above its 50-day MA of $19.68 and 200-day MA of $18.10, as seen from the chart below.
China Mobile Ltd.
China Mobile Limited, founded in 1997, is an investment holding company, providing mobile telecommunications and related services through GSM networks. China Mobile ranks as the largest mobile carrier in the world with over 722 million subscribers. China Mobile is expanding aggressively with its TD-LTE 4G network and had launched Nokia's (NOK) Lumia smartphone tailored for the Chinese market in December, 2012.
Fundamentally, CHL has an enterprise value of $158.10B and a market cap of $216.30B. CHL has total cash of $62.78B and a total debt of $4.57B. CHL has a higher operating margin of 27.3%, ttm, and net margin of 23.3%, ttm, as compared to the industry averages of 11.7% and 3.5%, ttm, respectively. CHL has a higher ROE of 19.6, as compared to the average of 5.3. CHL has a P/E of 10.7, which is lower than the industry average of 21.9 and CHL's 5 year average of 11.3. CHL has a forward P/E of 8.6, which is lower than the S&P 500's average of 13.3.
Technically, CHL is bearish. CHL closed at $53.81 with a 2.43% loss on January 25, 2013. CHL had been trading in the range of $49.37-$59.73 in the past 52 weeks. CHL has a low beta of 0.46. The MACD (12, 26, 9) indicator had been showing a bearish trend and the MACD difference continued to diverge. The momentum indicator, RSI (14) is showing a strong bearish momentum at 30.00. CHL is currently trading below its 50-day MA of $56.95 and 200-day MA of $54.51, as seen from the chart below.
The Coca-Cola Company
The Coca-Cola Company is the world's largest non-alcoholic beverage company, which owns or licenses and markets more than 500 non-alcoholic beverage brands, including Coca-Cola, Diet Coke, Fanta, Sprite, Dasani, Powerade and Minute Maid. KO has one of the widest moats in the consumer beverage industry, and the company is well positioned to take advantage of the strong international growth through its diversified brands and extensive distribution network. KO has been engaged in the anti-obesity campaign, which is getting mixed reaction.
Fundamentally, KO has an enterprise value of $180.83B and a market cap of $166.18B. KO has total cash of $18.08B and a total debt of $32.74B. KO generates higher operating margin of 22.1%, ttm, and net margin of 18.5%, ttm, as compared to the industry averages of 17.4% and 12.0%, ttm, respectively. KO's ROE of 26.5 is the same as the industry average. KO's PE of 19.3 is lower than the industry average of 19.8 and lower than the KO's 5 year average of 17.7. KO has a forward P/E of 15.2, which is higher than the S&P 500's average of 13.3.
Technically, KO is short-term neutral. KO closed at $37.05 with a 0.16% loss on January 25, 2013. KO had been trading in the range of $33.51-$40.67 in the past 52 weeks. KO has a low beta of 0.51. The MACD (12, 26, 9) is showing a neutral trend with an MACD Histogram at 0.022. The RSI (14) is near neutral at 47.87. KO closed below its 50-day MA of $37.13 on January 25 and had been trading between $37.63, the R1 pivot point and $36.61, the P point, in the past 2 weeks, as seen from the chart below.
Note: All prices are quoted from the closing of January 25, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.