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

Below, we'll look at companies that have proven themselves to be prodigious generators of free cash flow (FCF) -- the amount of leftover money that a company could potentially pay to its investors. We'll find companies that have generated compounded FCF growth rates exceeding 25% annually over the past five years, and then we'll pair them with the opinions of the 135,000-plus members of the Motley Fool CAPS investor-intelligence community, to see which ones might have the best chance of outperforming the market.


Leveraged FCF 5-Year CAGR, %

CAPS Rating (out of 5)

Nucor (NYSE:NUE)



Schering-Plough (NYSE:SGP)



Texas Instruments (NYSE:TXN)



Union Pacific (NYSE:UNP)



Universal Insurance (NYSE:UVE)



Sources: 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.

When it comes to their pets, some people are just plain nuts. They pamper, coddle, and otherwise treat their animals as members of the family. But Schering-Plough and Merck (NYSE:MRK) realized there was money to be made off the madness, and their competing animal-health divisions, Merial and Intervet, are rich cash generators as a result.

Merial had sales of $2.6 billion in 2008, split evenly between Merck and joint-venture partner sanofi-aventis, while Intervet realized about $3 billion for Schering. Meanwhile, revenue for the combined animal-health division of Wyeth and Pfizer (NYSE:PFE), which are set to merge, approaches $3.9 billion.

Now that Merck and Schering are merging, though, regulators were looking askance at what a combined powerhouse their two animal-health divisions would create, so Merck ended up selling its half of Merial to sanofi-aventis, although it still has the potential to get back in at a later date.

Yet some investors are being driven by the animal spirits swirling around the merger. With Schering's stock trading north of the $23.61 mark at which Merck agreed to buy the company, there may be gains to be made in an arbitrage play. Says CAPS All-Star member ValueArbitrage: "Like WYE, SGP is an attractive merger arbitrage opportunity that is currently offering investors a solid internal rate of return (especially relative to the risk of the deal not going through) assuming the deal closes on schedule."

Stuck on the siding
Some industries still don't show much evidence of benefiting from the supposed economic recovery, and those signs could be a signal that things are about to derail again. Railroads such as Union Pacific have generated surprising profits because of the strength of their cost-cutting initiatives, but rail traffic remains depressed, down 19% so far this year. Union Pacific, with a 25% share of the market, has fallen by more than 20% in 2009.

Yet even here we see a case of "less bad" news, as the latest numbers show rail traffic just starting to inch higher. CAPS member jigar34 sees a light at the end of the tunnel:

Cheapest way to transport essential goods (coal, gas, agri products, imports from Asia, etc.) per unit weight, a quality sought after during high fuel prices … which we should expect with global rebound in oil consumption which will outstrip supply increases not too far into the future. [Union Pacific] is the largest railroad with great access to many American metros and some very busy ports. Plus, Mr. [Buffett] has been buying [Union Pacific] as well.

The CAPS Road & Rail sector has been doing well lately, though, up 14% for the month, compared with an 11.5% rise in the S&P 500.

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. Head over to the completely free CAPS service, and let us hear what you have to say about these or any other stocks that you think will continue to be rolling in the dough.

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Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.