Welcome back to the world of the Cash Kings, where we highlight businesses that generate a healthy dose of free cash flow. Why is cash flow so important? Because it gives management the opportunity to boost shareholder value through actions like:
- Paying dynasty-building dividends.
- Buying back shares at attractive prices.
- Growing the business organically without having to borrow money or sell shares.
A Fool's guide to free cash
Investing, after all, is about putting money up front today in order to get more of it in return tomorrow. Here at the Fool, we're firm believers that free cash flow, as opposed to traditional accounting earnings, is the best gauge of a firm's health and profitability (or lack thereof).
So with these cash flow lessons deeply engrained in your Foolish subconscious -- or maybe just bookmarked as a "favorites" page -- I'll highlight three more cash-flow rulers of our Motley Fool CAPS kingdom.
Unlike Tenet Healthcare
Sound the trumpets! Here's another trio of Cash Kings from CAPS:
|
Company |
Cash King Margin (ttm) |
CAPS |
CAPS |
|---|---|---|---|
|
Citizens Communications |
24% |
251 |
25 |
|
Atwood Oceanics |
17% |
590 |
4 |
|
Atheros Communications |
16% |
1092 |
16 |
As always, do not consider these stocks formal picks -- merely suggestions worth further investigation. After all, due diligence is the Fool's way to riches.
But just for starters, here's a quick summary of these cash-throwing kings, and what some of their loyal CAPS followers think of them.
Senior Citizens
With an impressive free cash flow-to-sales margin of more than 20%, Motley Fool Income Investor pick Citizens Communications takes the honors as this week's most prolific cash king.
One of the nation's prominent small-market phone companies, Citizens has industry-leading penetration rates (25%), focused geographic operations (New York and Pennsylvania), and attractive new bundled products -- including EchoStar
CAPS All-Star McBryde weighs the good with the bad:
With a sprawling area of coverage and a great dividend of over 6% (now sits at a 7.2% yield), it makes this one an eye catcher for me. Although its debt ratio is very high for my taste, I looked again and discovered that it's purchasing up other companies to position itself as the seventh largest phone company. A little high risk debt for a good advantage in the long run seems allowed.
Oceanic overlord
The next monarch on our list is Atwood Oceanics, a leading offshore driller, and a formal selection of our Motley Fool Stock Advisor service. It's up 22% since Tom Gardner picked it last month.
Over the past five years, Atwood has leveraged its eight oil rigs and expertise in the premium field of deepwater drilling to grow earnings and operating cash flow by more than 20% per year. With a current PEG of 0.29, even non-Stock Advisor subscribers may still have a shot at a bargain here.
CAPS All-Star sblessman drills down further:
Management seems to make decisions based on long term benefit. Business model appears to be a win-win for them and their customers. ... [Generates] a bunch of cash and will be looking for more opportunities in 2008. New rigs under construction will generate new cash flows in [2009-ish]. Long term play for me.
Caliph of communication
Our last free cash flow ruler this week is Atheros Communications, a California-based semiconductor company, and yet another formal Foolish selection -- this time, from our team over at Motley Fool Hidden Gems. I told you, we're crazy for free cash!
Fueled by 50% year-over-year revenue growth -- thanks to heavy demand for its respected wireless LAN chips -- the stock is up nearly 50% since its recommendation last October. It logged those gains despite tough competition from the likes of Broadcom
CAPS All-Star and fellow Fool TMFPlatoish communicates more:
Atheros is a small, focused, well-positioned semiconductor company in the exploding space of wirelessly enabling everything. Their single chip CMOS radio solutions are both technically superior and a lower cost alternative to much of their competition. Even though they are walking among giants, they have demonstrated the ability to take market share as they go.
The Foolish bottom line
Free cash flow-generating companies like Citizens Communications, Atwood Oceanics, and Atheros Communications are always among my top candidates for further research. Our Motley Fool CAPS intelligence database is a great place to look for your own Cash Kings, or read what your fellow Fools think about thousands of different stocks.
Click here to join the forward-thinking CAPS community free of charge.
Be sure to join us next time, when I'll feature three more cash kings from CAPS. Until then, may your cash flow reign supreme.
