While looking for stocks that generate immense free cash flow (FCF) is easy enough, these promising companies are rarely coupled with significant discounts on their share prices.

However, the two stellar FCF-generators we will look at today, Rollins (ROL 0.82%) and Insperity (NSP 2.25%), are trading less than 10% above their 52-week lows.

Boasting return on invested capital (ROIC) figures that are higher than 95% of the companies in the S&P 500 index, the two companies' FCF-creation capabilities are remarkable. Cash ROIC measures a company's FCF generation to its debt and equity, with the companies' incredibly high marks signaling that they are experts at reinvesting their capital efficiently.

Buoyed by this outsized FCF production, here's why Rollins and Insperity look like magnificent buys at today's discounted prices.

Rollins continues building upon its impressive acquisitive track record

After buying the well-recognized brand Orkin in 1964, Rollins went on to have an initial public offering just four years later. Since then, the pest and termite control stock has delivered a total return that would see investors' value grow by 221 times their original investment. Making this run all the more remarkable is that these returns have shown no signs of slowing down, with the company's total returns quadrupling over the last decade alone. 

However, down 27% in just the last three months, the seemingly unstoppable serial acquirer has been hit by a rare and significant drop in price.

Reporting slightly less-than-perfect earnings in July, Rollins dropped 10% in one day. More recently, one of the company's main competitors, Rentokil Initial (owners of Rollins' largest peer, Terminix), made matters even worse after warning of soft macroeconomic conditions in North America. This sent Rollins' stock down an additional 10% in just one day again in October.

These declines leave the company's valuation at its lowest level since 2015.

ROL Price to Free Cash Flow Chart
ROL Price to Free Cash Flow data by YCharts.

So does this mean Rollins is a "broken" stock?

I'd argue that the answer is far from it.

Growing sales by 15% in its most recent quarter, the company saw an equal balance between 8% organic revenue growth and 7% added from mergers and acquisitions (M&A). Furthermore, FCF rose 18% -- which, when paired with the company's sales growth, highlights that the 169 purchases it has made since 2018 continue to drive impressive returns.

So, while it is true that the upcoming quarter could be more challenging for Rollins -- based on Rentokil's warning -- the company is far from struggling. In fact, Rollins has a history of thriving in harsher macroeconomic conditions thanks to its highly fragmented market and highly acquisitive nature. As the company's diminutive peers struggle amid the challenging environment, Rollins can come in with sweetheart deals and scoop up profitable competitors at fair prices.

Boasting an average cash ROIC of 34% over the last decade, Rollins has a brilliant track record of successfully integrating these acquisitions. With history showing that high cash ROICs like Rollins' have proven to beat the market over time, the company looks like a magnificent buy near 52-week lows and at an eight-year low valuation.

Insperity looks to rebound from a tough quarter

As a professional employer organization (PEO), Insperity helps small to mid-sized businesses (SMBs) -- typically five to roughly 5,000 employees large -- with their human resources (HR) needs. Whether it's facilitating payroll and benefits, recruiting and training, or compliance and employee performance management, Insperity's business solutions allow SMBs to focus on their operations while outsourcing their HR needs for a small fee.

Insperity is home to 310,000 paid worksite employees courtesy of its nearly 12,000 SMB clients, which grew by 7% from the prior year. Despite this promising growth in worksite employees, the company's earnings-per-share (EPS) and FCF dropped by 61% and 40% during the second quarter. These declines were due to increased costs from an unusually high number of large health insurance claims and an increased uptake in pharmaceutical products -- specifically weight-loss and mental well-being prescriptions.

Although this drop in profitability may seem alarming, it is part of the natural lumpiness of being a PEO that offers healthcare benefits. To absorb these costs, management plans to pass along high-single-digit price increases to its clients. While this may sound like a risky move, Insperity owned an impressive 99% client retention rate each month of the second quarter, highlighting a loyal customer base that isn't likely to leave due to a slight price increase during inflationary times.

Best yet, Insperity is not only the largest of its most similar peers but owns the group's highest average cash ROIC and most robust revenue growth rate over the last five years.

NSP Cash Return on Capital Invested (CROCI) (TTM) Chart
NSP Cash Return on Capital Invested (CROCI) (TTM) data by YCharts.

Much like Rollins, this incredibly high cash ROIC is a potential indicator of outperformance potential and helps explain how the company has delivered total returns of over 500% since 2013. 

The cherry on top of it all for investors?

Insperity recently ranked 28th on Glassdoor's Best Places to Work list in 2023, thanks to its employees giving the company a 4.5 out of five-star rating for employment satisfaction. According to App Economy Insights, publicly traded stocks on this list have historically outperformed the S&P 500 since 2009, adding another layer of intrigue to buying Insperity. 

Thanks to this strong culture, the company's best-in-class profitability and growth, and its price-to-FCF of 18 (despite FCF dropping in the second quarter), Insperity makes for a magnificent purchase just 7% above 52-week highs.