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Strategies & Market Trends : Free Cash Flow as Value Criterion -- Ignore unavailable to you. Want to Upgrade?

To: TimmFred who wrote (150)	11/9/1997 10:06:00 PM
From: jbe	Respond to of 253

<I for one would love to see a list of low-ratio companies which we could kick around in an effort to find a company or companies which stick out even after we try to compensate for the "external" factors.> I have been running various screens that keep on turning up -- guess what! -- cement companies! I don't know what there is about that admittedly very prosaic industry, but the companies in it tend to have a lot of operating cash flow AND free cash flow. Let me first explain how I zeroed in on the cement companies. First of all, they have always ranked high on high free cash flow per share on screens I have run using Telescan Pro Search. However, the Pro Search's free cash flow per share indicator is not functioning right now. So the other day I ran a screen using the following indicators: ERG, high as possible (ERG is a wonderful indicator, combining EPS rank, relative strength rank and group rank); total debt/.equity ratio, less than .50; 5 -yr EPS consistency, high as possible; and, finally, price/(operating) cash flow ratio, between 1 and 15. That produced a list of 25 companies Then I went to Market Guide to check out their price/free cash flow ratios. Then, since Market Guide can't always be trusted, I looked up the 10-K's of the companies that seemed to have the lowest price/FCF ratios, to see if the numbers matched. They did, more or less. The following cement companies were all among the top (or should I say bottom?) scorers (bear in mind that the S&P average price/FCF ratio is 39 or 36 -- can't remember which right now): SOUTHDOWN (SDW): 14.71 CENTEX CONSTRUCTION (CXP): 11.43 LONE STAR INDUSTRIES (LCE): 12.01 These companies also have relatively low p/e's and price/sales ratios, as well as good and predictable earnings, decent momentum, and lowish (not super low, except in the case of LCE) PEG ratios. The only other company with a price/FCF ratio in the bottom 20% turned up by this particular screen was an outfit called ELXSI Corp. (??), ticker symbol ELXS. Next -- another screen!