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Strategies & Market Trends : Free Cash Flow as Value Criterion
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To: jbe who wrote (33)10/28/1997 8:47:00 PM
From: Bill Morel  Read Replies (1) of 253
 
>>> ... 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.

I've been lurking a while and just had to respond to this. The thread is great, but there is not much mention of changing fundamentals in whatever industry area we're investing in. The oil drillers, for example, have been in a recession for 15 years so historical data is not really applicable. Using four years of historical data as a basis of prediction is only applicable for companies that can be considered very long term growers in a non-capital-obsolesence industry (e.g. KO)
INTC on the otherhand will crash as soon as everyone has a fast enough PC (admittedly a long time off :-)

The market discounts *future* cash flows and that is why the Peter Lynch approach of thinking about fundamentals is essential as well.

It seems that "visibility" is also a factor - oil drillers have good visibility presumed at the moment.
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