Andrew and all: free cash flow stars with high eps and relative strength ranks (as per IBD).
Although this may be fiddling while Rome burns (looks like another lousy day coming up), I'd nevertheless like to share some data with you.
In an earlier post (#5),I listed the stocks I bought this year (only Plexus and Telebras omitted) along with their price/cash flow and price/free cash flow numbers. Note that they all have good eps and relative strength numbers as well, which may (or may not) say something about the virtues of the free cash flow valuation approach.
The following meet the basic criteria set by free cash flow gurus Hackel & Livnet (post #7): 1) low debt, and 2) price free/cashflow ratios below 15, that is, in the bottom 20% of all stocks). Another striking feature: their price/free cash flow ratios are all LOWER than their price/cash flow ratios. Generally, the reverse is true (average S&P price/cash flow ratio is 16..52, and the average price/free cash flow ratio is 37.86 -- more than 21 points higher).
Chicago Rivet & Machine (CVR): p/FCF: 8.48 EPS: 96 RS: 97
Engineered Support Systems (EASI): p/FCF: 9.85 EPS: 98 RS: 94
Benchmark Electronics (BHE): p/FCF: 12.27 EPS: 88 RS: 89
Herman Miller (MLHR): p/FCF: 12.95 EPS: 90 RS: 95
Compaq (CPQ): p/FCF: 14.13 EPS: 97 RS: 98
The following have price/free cashflow ratios below the S&P average, and/or below the averages for their industries. Note, especially, Tidewater: almost all the highflying companies in oil drilling & services & equipment industries have negative free cash flow.
Paul Harris (PAUH): p/FCF: 23.05 EPS: 74 RS: 93
Tidewater (TDW): p/FCF: 26.65 EPS: 99 RS: 75
Intel (INTC): p/FCF: 28.79 EPS: 98 RS: 85
Western Digital (WDC): p/FCF: 39.64 EPS: 94 RS: 92
Most of these stocks also have good PEGS, with four exceptions. One is CVR, which does not have a PEG because no analysts follow it. The others are INTC, CPQ, and MLHR, which from PEG standpoint look fairly valued or even overvalued. BUT, as we know, the PEG is calculated on the basis of earnings, not free cash flow. And the question is: are these stocks actually undervalued, or not? What do you think?
Andrew, I did not comment on your numbers (post #6) because I am not quite sure what they relate to. Are they quarterly, or yearly, FCF numbers? Can you elaborate?
As for the rest of you, glad to see you here! Thanks to you, this thread actually made it onto the Hot Topics list! (At least for one moment of glory.)
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