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 that figure to mask a company's true operations. In that light, a company's ability to generate cash -- what comes in the register and goes out the door -- remains the preeminent indicator of its true worth. In short, cash is king.

Below, we'll look at companies that have proved themselves prodigious generators of free cash flow (FCF) -- the amount of money a company generates 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 stocks 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.


Levered FCF
5-Yr CAGR, %

CAPS Rating
(5 Stars max.)

MDC Holdings (NYSE:MDC)



NutriSystem (NASDAQ:NTRI)



Oshkosh (NYSE:OSK)



Parametric Technology (NASDAQ:PMTC)



Perficient (NASDAQ:PRFT)



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, rather than its earnings, would have saved many investors a lot of grief. Use this list as a jumping-off point to dig deeper into these companies and their piles of cash.

Consulting services need to bring something extra to the table in a severe economic downturn.  For example, Corporate Executive Board (NASDAQ:EXBD) was able to increase contract value growth, a key measure of its performance, by bringing best practices for survival to its clients. Similarly, IT consultant Perficient was able to grow revenue in its last quarter and expand its client list by focusing its attention on integration work, thanks to the consolidation underway in the financial services industry.

Top-rated CAPS All-Star tenmiles notes that while Perficient has been battered in this market, this consistent grower could prove profitable for those with a long-term investing horizon. Here's the early-November pitch:

Recent small cap drubbing, Perficient, looks attractive for those with 3-5 year horizon. IT consulting is a tough space right now, but this one is consistent grower with attractive value metrics after its price collapse ... Company continues to acquire marquee clients including Grumann and Blue Cross Florida during last quarter. Stock buyback in place; also has additional $75 line of credit - appears safe to buy in the low 4's for all but the most short-term oriented. Stock price suggests free long-dated 'call option" from Accenture, if they would decide to make a pass at the company - unlikely, but could happen.

Ring the register
To make it through the current housing slump, builders not only need cash-generating capabilities, but also the patience to pick opportunities for growth. At a time when some builders like Beazer Homes (NYSE:BZH) seem on the verge of collapse, MDC Holdings has both cash and patience in spades. Though, the company reported an earnings loss last quarter, that figure was still an improvement from the previous year. In addition, MDC was cash flow positive in that quarter, and it has more than $1 billion cash on hand to deploy when the time is right.

Back in October, CAPS member cmolinel noted that despite a lousy housing market and investors' suspicion of anything related to homebuilding, this two-star company's cash hoard would let it gain share when the sector finally rebounded:

MDC builds homes. The market for new homes is depressed but it is expected to reach the bottom by mid 2009. Many small, not public building companies has gone bankrupt. When the market reacts, MDC and other big companies will gain market share at their expense. MDC has enough cash to survive until then, besides a good amount of land.

Follow the money
It pays to start your own research on these cash-rich stocks with some help from 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 share your opinions about these or any other stocks you think might be rolling in the dough.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.