40 Stocks With A Free Cash Flow Yield Of 10% Or Better

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Includes: ANDV, ARC, AXL, BBBY, BKE, CALM, CYH, DAL, DDS, EBF, ENTA, GBX, GILD, GME, GNC, HA, KSS, LCI, LNTH, M, MFLX, MHO, MSGN, NEWM, NSIT, NSR, OUTR, RAIL, RRD, SPKE, SVU, TECD, TGNA, TPH, TSQ, VLO, WNC, WNR, YRCW, ZAGG
by: Skeptical Optimist

Summary

We screened the Russell 3,000 for stocks with a high free cash flow yield. The screen shows 40 stocks.

This is a measure, not unlike dividend yield, of how much cash flow a company generates relative to its market cap.

Like dividends, it is less easily manipulated than some financial measures (like EPS).

The screen shows 40 stocks with a FCFY of 10% or better.

Recently the Wall Street Journal highlighted the popularity of ROIC (Return on invested capital) as a tool for stockpicking. In our view, Free Cash Flow Yield (FCFY) is as good a measure, for at least two reasons.

First, it is based on market value not book value, which is independent of the stock price (or the cost of equity capital).

Secondly, ROIC shows the return for the enterprise as a whole - both debt and equity - while FCFY includes the effect of leverage.

Our screen shows 40 stocks with a free cash flow yield of 10% or better.

The screen also excludes companies whose Weighted Average Cost of Capital is greater than its ROIC.

Companies which generate significant free cash flow relative to their market cap are potentially targets for a leveraged buyout (LBO), because they generate cash that could be used to service debt. It is possible to make some assumptions as to the terms of a potential LBO and thereby calculate a theoretical price at which the company might be LBO'ed. In some cases - especially in cyclical industries where FCF may be very volatile - LBOs are not really very likely. Still, it is a useful indicator of value; and the final criterion for our screen is that this theoretical LBO price should be higher than the current stock price.

Some investors focus on dividend yield as a manipulation-resistant measure of a company's cash generating power, because you can't fake a cash dividend. Admittedly, companies with a high FCFY do not always pay out their excess cash flow or buy back their stocks. In our view, though, the FCFY screen is a good starting point for yield-oriented investors or those whose focus is on companies which return more cash for the invested dollar.

Company (Ticker) Industry Price WACC ROIC FCFY Prem
Lantheus Holdings Inc (NASDAQ:LNTH) Healthcare-Products $2.10 3.6% 19.9% 45.7% 259.6%
Greenbrier Cos Inc/The (NYSE:GBX) Trucking & Leasing $28.75 11.0% 29.9% 32.1% 266.8%
Outerwall Inc (NASDAQ:OUTR) Retail $40.99 6.0% 13.6% 27.7% 164.7%
NeuStar Inc (NYSE:NSR) Telecom $23.51 6.9% 10.0% 20.0% 181.9%
Western Refining Inc (NYSE:WNR) Oil & Gas $26.70 7.7% 15.8% 18.5% 71.1%
Townsquare Media Inc (NYSE:TSQ) Media $10.70 3.9% 6.0% 18.1% 73.1%
ARC Document Solutions (NYSE:ARC) Commercial Services $4.20 5.5% 6.4% 17.1% 40.1%
SUPERVALU Inc (NYSE:SVU) Food $5.02 5.5% 13.7% 16.5% 44.6%
YRC Worldwide Inc (NASDAQ:YRCW) Transportation $8.86 6.9% 13.1% 15.7% 108.5%
MSG Networks Inc (NYSE:MSGN) Media $17.14 4.9% 201.4% 15.3% 25.2%
American Axle (NYSE:AXL) Auto Parts $15.36 7.1% 16.6% 14.7% 77.7%
Community Health (NYSE:CYH) Healthcare-Services $15.74 3.3% 4.1% 14.7% 74.9%
New Media Investment (NYSE:NEWM) Internet $16.21 8.0% 8.3% 14.5% 34.9%
Valero Energy Corp (NYSE:VLO) Oil & Gas $59.82 9.0% 16.8% 14.5% 33.9%
Lannett Co Inc (NYSEMKT:LCI) Pharmaceuticals $18.67 6.2% 8.5% 14.4% 135.4%
Tesoro Corp (TSO) Oil & Gas $81.03 8.1% 16.9% 14.1% 26.4%
Dillard's Inc (NYSE:DDS) Retail $71.41 7.8% 12.6% 13.8% 51.0%
Wabash National Corp (NYSE:WNC) Auto Manufacturers $14.24 8.7% 22.2% 13.2% 45.5%
M/I Homes Inc (NYSE:MHO) Home Builders $20.36 5.1% 6.0% 12.8% 0.2%
TEGNA Inc (NYSE:TGNA) Media $23.39 7.6% 10.1% 12.6% 13.9%
RR Donnelley & Sons Co (NASDAQ:RRD) Commercial Services $17.59 5.9% 10.2% 12.5% 31.1%
Cal-Maine Foods Inc (NASDAQ:CALM) Food $52.41 9.5% 37.4% 12.5% 64.5%
Tech Data Corp (NASDAQ:TECD) Electronics $64.90 8.8% 14.2% 12.3% 19.1%
Kohl's Corp (NYSE:KSS) Retail $45.07 6.8% 10.6% 12.3% 24.6%
Spark Energy Inc (NASDAQ:SPKE) Electric $24.94 4.4% 25.1% 12.0% 4.7%
Gilead Sciences Inc (NASDAQ:GILD) Biotechnology $89.00 8.0% 59.8% 11.9% 27.0%
GameStop Corp (NYSE:GME) Retail $32.36 10.2% 21.3% 11.6% 50.3%
Insight Enterprises Inc (NASDAQ:NSIT) Computers $24.56 9.8% 13.2% 11.3% 51.8%
FreightCar America Inc (NASDAQ:RAIL) Manufacturing $17.00 11.4% 20.0% 11.2% 61.5%
Macy's Inc (NYSE:M) Retail $39.91 6.0% 12.3% 11.0% 24.4%
GNC Holdings Inc (NYSE:GNC) Retail $26.02 6.7% 14.6% 11.0% 11.9%
Bed Bath & Beyond Inc (NASDAQ:BBBY) Retail $46.55 7.1% 26.0% 10.9% 28.4%
ZAGG Inc (NASDAQ:ZAGG) Electronics $8.16 13.1% 14.3% 10.8% 93.2%
Enanta Pharmaceuticals (NASDAQ:ENTA) Pharmaceuticals $27.54 9.4% 26.7% 10.5% 0.9%
Delta Air Lines Inc (NYSE:DAL) Airlines $42.17 9.0% 28.7% 10.4% 78.6%
Buckle Inc/The (NYSE:BKE) Retail $28.91 7.7% 59.3% 10.4% 35.8%
Multi-Fineline Electronix (NASDAQ:MFLX) Electronics $22.94 8.9% 18.7% 10.2% 29.5%
Hawaiian Holdings Inc (NASDAQ:HA) Airlines $42.77 11.1% 29.7% 10.1% 58.0%
Ennis Inc (NYSE:EBF) Commercial Services $19.58 7.4% 12.3% 10.1% 4.0%
TRI Pointe Group Inc (NYSE:TPH) Home Builders $11.79 7.2% 7.8% 10.0% 21.0%

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

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.