5 Bargain Stocks With High Free Cash Flow Yields
That's why it pays to look at free cash flow, which is operating cash flow minus capital expenditures. Positive free cash flow means real money is coming in the door, fattening up the balance sheet in the process.
Yet in the current tough market environment, even companies with a track record of consistent solid FCF are being shunned. That provides investors with the rare chance to snap up these stocks while they are sporting FCF yields (free cash flow divided by enterprise value) in excess of 10%.
With that in mind, here's a look at five FCF bargains.
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Health insurer Humana (HUM) is the poster child for free cash flow yields. That's because Humana's cash balance is so large, that the company's enterprise value (market value plus debt minus cash) is just $1.4 billion. That's less than the free cash flow this company spits out every year, creating a free cash flow yield above 100%.
Why is this company worth so little when cash and debt are excluded? Because investors fret that the overhaul of our nation's health care delivery will impinge upon the profits of health care insurers. That's likely true. Still, these insurers are likely to remain nicely profitable.