Sticking With Wells Fargo and Cisco
Legendary investment publisher Porter Stansberry recently opined on his version of what a smart investor looks for, especially in this time of unprecedented monetary accommodation by the Federal Reserve .
"Thus, in my Investment Advisory, we judge companies primarily by how efficiently they produce cash. We're interested in how much cash a company generates per unit of sales. And we're interested in how much of this profit is reinvested into the business (through capital expenditures or acquisitions) versus how much is simply returned to the company's real owners - its shareholders," wrote Stansberry.
Successful investors like Warren Buffett and Stansberry would say something similar to, "And we're very interested in the price per share we have to pay to capture our share of the cash the underlying business is producing."So let's look at the first business I consider a "cash-flow king."
As the late Henny Youngman might have said, "Take Wells Fargo, (WFC) please!" WFC happens to be my single favorite bank and financial company right now, and there are many reasons why.
One is its ability to generate a wonderful amount of cash from continuing operations through an ever-increasing return on invested capital. The one-year chart below is a good illustration of what I'm describing. Few companies do it better than Wells Fargo.
WFC Cash from Operations TTM data by YCharts
As I wrote in a recent article , "With the Federal Reserve as the 'wind beneath its wings,' the big banks may continue to soar. That's why I'd call Wells Fargo the alpha financial stock for 2013."
Well Fargo's trailing-12-months operating cash flow (as of the quarter ending Sept. 30th) was $26.06 billion. On Friday WFC will report to the world its earnings for the last quarter of 2012. Expectations of the analysts who follow WFC speak to its capital efficiency and cash generating acumen.Most large-cap stocks were once small and mid-cap stocks. Bryan Ashenberg is here to help you find the cream of the crop amongst the market chaos.
As I wrote in the above referenced article, "EPS for the year (2012) is expected to come in at $3.35, an almost 19% increase over 2011. The final revenue numbers for 2012 should be close to $85.7 billion, which should help boost the operating cash flow and total cash (which stood at $176.43 billion by the end of WFC's last quarter)."
Over the weekend I wrote yet another article in which I referenced one of the greatest investors of all time. This investor sticks to his discipline of buying companies that generate lots of free cash and an outstanding return on invested capital.