Thank you, Pirah Naman, for all that info about Value Line. It looks as if I will be spending more of my free time in the library than at the computer in future (which is fine by me).
However, I regret to say that did not get similar results when I ran the stocks on your good guys & bad guys lists past some of my usual sources. Unfortunately, the best & simplest source is laid up with a bug. Telescan's "Corporate Snapshot," among other things, normally provides a (present) free cash flow per share number AND a percentile ranking; but that parameter, alas, is malfunctioning. So I checked out the MarketGuide Ratio Comparisons (which tend to be slow in inputting new data), and Morningstar's "Quicktakes", which also don't always have up-to-the-minute info.
Those reservations made, this is what I found.
GOOD GUYS.
One of them -- Computer Associates (CA) -- would appear to have NEGATIVE free cashflow, or "NM," according to MarketGuide. Morningstar confirms it, giving the following yearly numbers(in millions) for free cash flow: +266.3 (1995); -l,750 (1996); -237 (1997). Well, it's getting better, but it still ain't out of the woods yet! Furthermore, it has too much debt -- debt/equity ratio of 1.23 -- leaving it, in my opinion, without enough room to maneuver.
I get contradictory data on Xerox (XRX). MarketGuide gives it an "NM", meaning negative free cash flow. Morningstar does not -- but then it doesn't have data for 1997. Here are the numbers for previous years: +1090 (1994); -236 (1995); +1,372 (1996). Maybe, it took a dip again in 1997, as it did in 1995. In any event, Xerox doesn't fit my requirement of positive increasing free cash flow for the preceding four years.
As for the rest of your good guys, none of them have a price/free cash flow ratio of less than 15 (the cut-off point used by my free cash flow gurus). But I personally am not a monomaniac about free cash flow, and look kindly on companies that are outstanding in other respects, as long as they have decent positive free cash flow.
You may have noted that Callaway Golf (ELY) passed the screen I mentioned in an earlier post: the one that screened for strong 5-year earnings, eps and cashflow growth, high ROA and high ROE, low debt, AND lowest possible free cash flow. But I should point out that ELY nevertheless has a price/free cash flow ratio of 53.33 -- higher than that sported by Cisco (52.04), which is an even better company than ELY in other respects. So how did Cisco, whose price/FCF ratio is only a few points higher than the average for its industry, get on your bad guys list?
Sun Microsystems (SUNW) does have a relatively low price/FCF ratio -- 27.08 -- but it doesn't begin to compete with Compaq's 12.80. Compaq looks a lot better in other respects as well.
Deere (DE) does have a respectable price/FCF ratio (21) but its debt/equity ratio of 1.74 is way over my limit of .40. Eventually, you do have to use your cash to pay off debt. I know that these big equipment companies all tend to carry a relatively high debt load, and there may be good reason for it. But since I don't know the reason, I keep away from those guys. (I don't touch what I don't understand.)
AMGN. Looks like an all-around great company with great free cash flow compared to its industry -- until you look at its chart (down all year), its recent revenue & eps declines, and the blistering downgrades (AMGN blasted, among other things, for "squandering" its cash). Ah, well. All that glitters is not gold.
So -- on to the BAD GUYS.
CSCO not a bad guy -- see above.
TLABS -- indeed pricey.
KO -- truly a bad guy. I never could understand why people called it a "cash king," whatever that's supposed to mean. I owned this stock, along with SGP, both of which I "inherited" from my investment advisor, when I still had one. I sold it recently, but I have hesitated to sell SGP, because it has been appreciating so much. I'm not that sure of myself, so I don't argue with success.
Besides, SGP's price/PCF ratio is nowhere near as outrageous as Coke's, and certainly both SGP and KO compare favorably with all those high-flying growth stocks out there with negative cash flow. To take only one example: I wanted very much to buy at least one oil drilling company. But in spite of the fact that most of them had good cash flow, virtually all of them had negative FREE cash flow. My inhibitions kept me from buying, until I finally broke down and bought Ensco International (ESV), which at least had positive cash flow (although a very high ratio). I don't regret it, incidentally.
Don't mean to sound pugnacious, but you did ask! I'd much appreciate some good hard repartee, and perhaps we can move towards a meeting of minds.
Regards,
jbe
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