SStrong companies with stable free cash flow are often a good source of value for investors looking for undervalued segments of the market. But which metrics best identify companies with the strongest financial foundation?
In the next webcast, Can you milk more worthless with the yield of free cash flow?, Sean O’Hara, President of Pacer ETFs Distributors, will discuss the benefits of high yielding free cash companies, aka âcash cows,â as well as how to spot and value these attractive stocks.
Investors interested in measuring free cash flow now have several options to choose from. For example, the ETF Pacer Global Cash Cows Dividend (NYSEArca: GCOW), the ETF Pacer US Cash Cows 100 (NYSEArca: COWZ), the ETF Pacer US Small Cap Cash Cows 100 (BATS: CALF), the ETF Pacer Developed Markets International Cash Cows 100 (BATS: ICOW), the ETF Pacer Emerging Markets Cash Cows 100 (NasdaqGM: ECOW), the ETF Pacer US Cash Cows Growth (BUL), and the ETF Pacer Cash Cows Fund of Funds (HERD) all use free cash flow performance filters to restrict their investment universes.
Focusing on companies with stable free cash flow may be a better approach to stock selection than the alternatives. Free cash flow is the cash that is left over after a business has paid expenses, interest, taxes, and long-term investments. It is used to buy back stocks, pay dividends or participate in mergers and acquisitions. The ability to generate a high return on free cash flow indicates that a business is producing more cash than it needs to run the business, which can then be invested in growth opportunities.
Free cash flow companies generally have three defining characteristics: they are productive, reliable and self-sufficient. Companies generate more cash flow than they spend, which allows them to grow without external financing. Free cash flow is a solid measure of profitability, which, unlike earnings, is not subject to handling and accounting assumptions. Finally, since companies are less dependent on capital markets for financing, they do not dilute their issued shares.
Financial advisors who want to learn more about free cash flow performance can register here for the Thursday, September 23 webcast.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.