Free cash flow (FCF) generation is of the utmost importance for investors. That metric -- defined as cash from operations minus capital expenditures -- represents the funds a company has easily available to buy back shares, pay dividends, repay debt, or reinvest in the business. Naturally, the more FCF, the better.

A great way to measure a company's FCF generation is by studying its FCF yield -- which is FCF per share divided by its share price. One way to think about this figure is to say that a company could theoretically fund a dividend at this percentage using nothing but its cash generation.

Anytime these yields rise above their historic averages, it should catch investors' attention -- potentially highlighting discounted operations. Three stocks which fit that description now are Alphabet (GOOG 0.23%) (GOOGL 0.26%)Thor Industries (THO 1.96%), and NVR (NVR 1.13%).

GOOGL Free Cash Flow Yield Chart

GOOGL Free Cash Flow Yield data by YCharts.

In addition to higher-than-average FCF yields, these businesses boast robust return on invested capital (ROIC) figures, demonstrating outsized profitability from their debt and equity. With high-ROIC stocks historically outperforming their peers, these three stocks look like great buys at today's discounted prices.

Alphabet

Once a seemingly unstoppable stock, Alphabet's share price has dropped by 35% in the last year as its revenue growth slowed to 11% in 2022's third quarter (on a constant-currency basis), and earnings per share (EPS) plummeted 24%.

With advertisers pulling back on spending, Microsoft investing $10 billion in OpenAI, and TikTok's budding search potential offering yet another threat, the market's outlook on Google's near-monopoly in search has soured. However, none of these issues seem to be existential threats to Alphabet.

First, the advertising business is famously cyclical. While the cryptocurrency, mortgage, loan, and insurance advertising categories lowered their marketing spending, that reflected more upon the macro environment than any long-term issues with Alphabet.

Second, if ever a company was ideally positioned to fight a battle for artificial intelligence (AI) supremacy, it's Alphabet. With its DeepMind subsidiary and a $140 billion cash hoard available to be tapped for new research and development (R&D) on AI innovation, Alphabet is ready to defend itself against the potential combination of Microsoft's Bing search engine and ChatGPT.

Lastly, Alphabet will start letting its content creators monetize their YouTube Shorts videos, differentiating itself from TikTok, which has not done so yet.

Alphabet is trading at an FCF yield of 5.2% (a level it hasn't seen since 2013) and an ROIC of 30%. As such, the market's bleak outlook on Alphabet's future provides investors with a fantastic buying opportunity. Given that its business will be buoyed by long-term megatrends supporting its Google Cloud Platform and YouTube video streaming, and considering its history of innovation, any chance to buy its shares at a discount feels like making a bet with the odds stacked in your favor.

Thor Industries

Despite operating in the highly cyclical recreational vehicle (RV) market, Thor Industries has posted profitability every year since its founding in 1980 -- with positive FCF since 2002. However, even though it posted new all-time highs in sales, EPS, and FCF in 2022, Thor's stock price has tumbled by 16% in the last year.

Although its sales and EPS dropped by 22% and 42%, respectively, in its fiscal 2023 first quarter due to proactive inventory destocking and weakness in Europe, Thor Industries remains the market leader in its five product categories in North America.

In its largest segment, towables (which account for 53% of sales), the company has a 42% market share. Meanwhile, its motorized unit (24% of sales) controls roughly 50% of its market. Throw in that it has the second-biggest RV market share in Europe, with 21% of sales, and it is clear that Thor dominates its field.

With around 400 factories, 3,500 dealerships, and 30,000 employees globally, the company has generated an average ROIC of 17% over the last decade, regardless of the volatile nature of its market. Furthermore, despite its recently disappointing earnings, Thor has an order backlog of $7.4 billion versus a market capitalization of only $4.4 billion.

Now sporting an FCF yield of 17%, Thor's FCF could theoretically be cut in half this year and it would still trade at a lower yield than its 10-year average. For further evidence of the company's discounted valuation, consider that management bought back 3% of Thor's shares in 2022 -- its first stock repurchases since 2015. With 98% of its first-time RV buyers intending to buy again someday, investors may be wise to follow management's lead and purchase shares.

NVR

Focusing on 14 states across the Eastern U.S., homebuilder NVR has managed to ever-so-slightly outperform the S&P 500 index in the face of rising interest rates. While the company grew sales and EPS by 16% and 37% in its most recent quarter, new orders declined by 15%, pushing the stock down to a lower valuation.

Typically avoiding land development, NVR uses lot purchase agreements for its homebuilding, generally paying 10% of the purchase price of the finished lot. This less capital-intensive model is gaining popularity among homebuilders, yet NVR seems to have mastered it the fastest -- as evidenced by its ROIC over the last couple of decades.

NVR Return on Invested Capital (Annual) Chart

NVR Return on Invested Capital (Annual) data by YCharts.

Particularly noteworthy is that NVR was the only one of its S&P 500 homebuilding peers that maintained a positive ROIC during the Great Recession. On top of this, the company averaged a 9% FCF margin over the last decade. This strong FCF offers management ample flexibility to repurchase stock; shares outstanding have declined by 36% over the last 10 years.

These consistent buybacks, paired with NVR's industry-leading ROIC, make it a great investment, particularly now, when it's trading at an FCF yield nearly 50% higher than its 10-year average. With the stock price up by more than 49,000% since its initial public offering in 1992, investors would be wise to consider this best-in-class homebuilder while it's trading at a discount.