Show Me the Money!

Had Jerry Maguire been an investor instead of a fictional sports agent, he might have become famous for yelling, "Show me the cash flow!"

Earnings come and go, and the green-eyeshade types can legally manipulate it to mask a company's true operations. Yet its ability to generate cash -- what comes in the register and goes out the door -- remains the preeminent indicator of company's worth. In short, cash is king.

Below, we'll look at companies that have proven themselves prodigious generators of free cash flow (FCF) -- the amount of money a company has left over that it could potentially pay to its investors. We'll find companies that have generated compounded free cash flow growth rates exceeding 25% annually over the past five years, then pair them with the opinions of the more than 120,000 members of the Motley Fool CAPS investor intelligence community, to see which ones might have the best chance of outperforming the market.

Over the first 20 months since CAPS began tracking the data, four-star stocks have outperformed the market by more than seven percentage points, while five-star stocks did even better. Keeping an eye on these top stocks might signal your best opportunity to capture those gains.

Company

FCF 5-Year CAGR

CAPS Rating (5 Stars Max)

Apple (Nasdaq: AAPL  )

132.6%

****

Research In Motion (Nasdaq: RIMM  )

143.3%

**

PotashCorp (NYSE: POT  )

64.0%

****

Yahoo! (Nasdaq: YHOO  )

37.2%

**

Amazon.com (Nasdaq: AMZN  )

32.3%

**

Source: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS.

Generating copious amounts of cash doesn't make a company an automatic buy. But having looked at Enron's cash flows instead of its earnings would have saved many investors a lot of grief. Warren Buffett understands that the value of a company today is calculated by its discounted future cash flows, so use this list as a jumping-off point to dig deeper into the piles of cash.

Ka-ching!
A recent change in guidance by Marvell Technology (Nasdaq: MRVL  ) , which provides some of the innards for Apple's iPhone, would seem to underscore an analyst's suggestion that the Mac maker may scale back iPhone production by 40% in response to worsening economic conditions. Still, others remind us that previous predictions of an Apple apocalypse have failed to materialize.

While CAPS member cfusiongod notes the rising tide of good competition lapping at Apple's sides, Cafarella finds the upcoming holidays a perfect opportunity to serve up a nice-sized helping of humble pie:

No debt, huge sales with great management. At one hundred a share its a steal. Also christmas is right around the corner, look for a really nice quarter although AAPL stays extremely stingy on there quarterly numbers. Humble pie served fresh every 3 months. I like it at 100.

Ring the register
Even companies that provide the cornerstone of essential products used world over -- such as the fertilizer needed to grow food crops -- aren't immune from the global economic crisis. Both PotashCorp and Mosaic (NYSE: MOS  ) were among the worst-performing stocks for the past few months. Yet while PotashCorp says that it, too, is subject to the ill winds blowing through the economy, long-term trends also suggest that the need for higher food production will push prices higher next year. That might further fortify the profits PotashCorp has earned; they've already quintupled year over year.

CAPS member NeverLift thinks that the world's biggest producer of potash will face little competition from the countries that might need its products the most:

Agricultural commodity prices and [fertilizer] prices are not that closely linked. No farmer is going to reduce his per-acre yield to save a few cents per bushel by applying less than optimum fertilizer quantities. Moreover, until China, India, and Brazil can develop their own fertilizer sources, Sask Potash rules. And it is my understanding that none of those countries have significant deposits to develop.

Follow the money
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Head over to the completely free CAPS service and let us hear what you've got to say about these or any other stocks rolling in the dough.

Amazon.com and Apple are Motley Fool Stock Advisor selections. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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