Re: Top Ten List
Thanks, STYK, for forwarding your list -- or, rather. lists.
A couple of comments/questions.
1) What distinguishes List #1 from List #2?
2) Any particular reason why you limited your search to the large caps?
2) You apparently are using the separate Telescan Pro-Search software package, which has a lot more bells and whistles than the Pro-Search that I access on the Wall Street City net. For example, I can't backtest; I can't exclude certain industries (as you excluded banks and autos), etc. AND there is no company/S&P growth ratio indicator on the Wall Street City site (although there is supposed to be).
3) Nevertheless, I did attempt to "sort of" duplicate your search by substituting company growth ratio AND company/industry growth ratio for the company/S&P growth ratio. Then instead of looking at debt/equity in the "list only" mode, I specified the absolute mode, minimum 0, maximum 50. On the advice of my mentors (see opening post), I try to target companies that are consistent generators of free cash flow, that HAVE LOW FINANCIAL LEVERAGE, and that have low free cash flow multiples. (If you use the concept of "enterprise value" (EV = capitalization + debt - cash, you will see why too much debt can cancel out all or much of the benefit of free cash flow.)
4) In any event, the following companies that were on your two lists fell off mine because their debt was above my cut-off point: TRV, IBM (whose price/FCF ratio was too high, anyway), CAT, AXP, HFS, HI, CSX.
DOW and FDC were just a little over the limit (total debt/equity .68 and .65, respectively), so I "spared" them.
5) The following companies on your lists fell off mine because their price/free cash flow ratios are too high: CSCO (52 as against S&P average of 37.45), ORCL (42), AA (41). DWD I left off because I think DWD (?) is a typo. Who/what is it?
6) From your lists. that leaves the following "top eight," ranked in accordance with their(approximate) price/FCF ratios (lower the better, of course).
ALL (11)
CPQ (13)
DOW (13) (but debt a bit high)
SUNW (19)
FDC (21) " " "
INTC (23)
DELL (24)
COMS (33)
CAUTION: These price/FCF ratios are calculated on the basis of free cash flow defined as net operating cash flow ( as per the 10-K and 10-Q cash flow statements) minus capital expenditures and dividends. That's the way that Telescan does it (as does Market Guide). If, however, you agree with Morningstar (see post #187), and do NOT include changes in working capital in calculating cash flow, you will get very different numbers, and you might come up with a very different ranking. Anyone want to try calculating the present price/FCF ratios using that method? (Are you listening, Andrew???)
Anyway, STYK, thanks for posting, and maybe some day we will all come to some agreement on which companies we can award our FCF medals to! By the way, cast your net a little wider, or rather a little lower (in terms of capitalization), and you will be surprised how many cement companies you will come up with!
jbe |
