3 Stocks Making Cash

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 a 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 160,000 members of the Motley Fool CAPS investor intelligence community, to see which ones might have the best chance of outperforming the market.

Source: Capital IQ, a division of Standard & Poor's; Motley Fool CAPS.
CAGR = compounded annual growth rate.

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.

A sizzling opportunity?
Computerized machine tool maker Hurco Companies burned through a lot of cash during the downturn last year as inventories built up, causing it to adjust production levels down to meet the lower demand.

However, the ISM manufacturing index staged a bigger than expected surge to 59.6% last month, indicating the economy is improving at a faster rate. Industrial suppliers like MSC Industrial Direct (NYSE: MSM) and Fastenal (Nasdaq: FAST) look to the index as a barometer of future growth, and we see the result in Hurco's own growing cash balances as well. Although productions levels are still down, inventory is now at a level more appropriate for the demand it's seeing.

Domestic economic recovery is certainly important for Hurco, but three-quarters of its revenues come from outside North America. CAPS member jckuhn is looking for that international convalescence to help propel the specialized machinist further:

I have held stock for 5 years and have watched as it gears up for emerging foreign markets and world market recovery.

The head of the class
Are celebrity spokespeople just not worth the cost? It was a bit of a setback for weight-loss leader Jenny Craig when its star dieter Kirstie Alley gained back all of the weight she lost (and then some) on its dieting program. And while a slimmed-down singer Jennifer Hudson looks more svelte after months on Weight Watchers (NYSE: WTW), she wasn't able to stem a 9% slide in revenues last year for the weight-loss industry heavyweight.

NutriSystem's own sports star tele-tubbies -- Chris Berman, Dan Marino, and Don Shula -- weren't doing much heavy lifting for it either, as its 2009 sales dropped 23% from the year before. Even if some see NutriSystem roaring ahead as it looks to cut costs, at more than 20 times earnings, it may seem expensive compared with Weight Watchers, which trades at a multiple that is about half that. Given the growth estimates for the two, Weight Watchers might take the cake.

Yet CAPS All-Star BuffetsMentor sees four reasons why it's NutriSystem that will be able to have its cake and eat it, too:

1) america needs to get in shape 2) beaten up 3) lots of short interest 4) some insider trading

Eye-popping results
3-D printer maker Stratasys got a big boost earlier this year when a deal with Hewlett-Packard (NYSE: HPQ) promised to take its technology from science fiction to science fact by making its printers available to a wider audience in Europe. HP envisions a market of millions that will take the technology global, while Stratasys says revenues could hit half a billion in just five years.

CAPS member spoofhopper agrees, seeing the deal as essentially printing money for Stratasys in the immediate future:

computer based systems, aggressive small growth-big deal with HP, expected to triple revenue in 3 years, 41% market share, slightly behind 3-D systems in revenue but sells more units, 25% annual growth over the next 3 years

Follow the money
While these stocks have left a trail of dollars, it pays to start your own research 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. Why not head over to the completely free CAPS service and let us hear what you've got to say about these or any other stocks that you think will continue to be rolling in the dough.