6 Domestic Large Caps With Impressive Free Cash Flow

|
Includes: CF, F, HPQ, HUM, SYMC, WDC
by: Zvi Bar

Many investors believe that a company’s free cash flow is one of the more important fundamental metrics in evaluating an equity investment. Some have agued that Wall Street’s focus on revenue and earnings, which are more easily manipulated through accounting, without direct concern for calculating the actual money that a business is generating.

Free cash flow (FCF) is operating cash flow minus capital expenditures. FCF is the cash that a company made after paying out the money required to maintain and/or expand the business. Free cash flow enables a company to pursue acquisitions and growth initiatives, among other options. FCF may also allow a company to initiate or increase dividends.

In searching for companies that have strong FCF, I started reviewing large cap U.S. companies. I eliminated all companies in finance and banking, as their flows, assets and liabilities can be volatile. Of the remaining companies, I screened for only those that have 10% Earnings Per Share over the past 5 years and a current price to FCF of fewer than 10. The following six companies are the ones I discovered that met all the criteria.

Symbol

Company

Industry

Market Cap

P/E

P/FCF

(NYSE:CF)

CF Industries Holdings, Inc.

Agricultural Chemicals

$10.8 B

17.14

8.1

(NYSE:F)

Ford Motor Co.

Auto Manufacturers - Major

$50.7 B

7.9

6.78

(NYSE:HPQ)

Hewlett-Packard Company

Diversified Computer Systems

$76.28 B

8.64

9.05

(NYSE:HUM)

Humana Inc.

Health Care Plans

$13.16 B

11.48

7.67

(SNDK)

SanDisk Corp.

Semiconductor- Memory Chips

$10.13 B

7.95

7.43

(NASDAQ:SYMC)

Symantec Corp.

Security Software & Services

$13.97 B

24.34

9.15

Click to enlarge

While on its own, free cash flow is likely insufficient to base an investment decision, it is an important metric and one that is rarely provided. Such information can help you get a greater understanding of the fundamentals of businesses and identify proper investments.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.